Oil on Rampage Despite Saudi Reassurance

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Oil on Rampage Despite Saudi Reassurance Updated 8:23 AM ET October 13, 2000 By William Maclean LONDON (Reuters) - Oil prices remained in orbit on Friday despite Saudi signals that Middle East violence would not spark a retaliatory Arab export ban against Western support for Israel.

Traders scrambling to lock in supplies of petroleum pushed benchmark Brent crude 48 cents higher to $35.07 a barrel after a bomb blast on Friday rocked the British embassy in Yemen.

That was just 23 cents off a fresh 10-year peak struck on Thursday amid fresh Israeli-Palestinian violence and a suicide bombing of a U.S. warship in the southern Yemeni port of Aden.

Many dealers said the market, already strained by unusually low stocks of spare oil, would stay on the boil as participants buy oil to guard against violence over the weekend.

"The word from Washington is containment. But containment is just not happening," said Peter Gignoux, head of the energy desk at Salomon Smith Barney.

"No one is going to go home short tonight. In this market, being balanced means being long."

Brent later eased to $34.39, for a fall of 20 cents, on word that Saudi Arabia would not consider suspending oil exports to punish U.S. support for Israel.

U.S. light crudes were eight cents off at $35.98 a barrel.

Sources familiar with Saudi thinking said Saudi Arabia, the world's biggest oil producer, would not consider suspending oil exports to punish U.S. support for Israel.

The sources said the kingdom had not raised the issue with the United States, which Arabs have long criticized for what they see as Washington's unquestioning backing of Israel.

"Nobody is talking about this at all. It is not an item on the agenda," one of the sources familiar with thinking in Saudi Arabia and other Gulf states told Reuters.

Dealers are frightened about the possible implications the Middle East crisis holds for flows of petroleum to the world's economies from a region holding the bulk of crude oil reserves.

IRAQI INTENTIONS STIR JITTERS

Yemen was the source of fresh market jitters when a blast hit the British embassy in the capital Sanaa on Friday in what the British government said was a bomb attack.

Another worry is Iraq, which pumps five percent of internationally traded crude and is wielding an array of political and economic levers to try to end Gulf War sanctions.

"Handed a huge stage such as the Israeli-Palestinian peace process, who knows what he will do," said London brokers GNI, referring to Iraqi President Saddam Hussein.

Memories are reviving of the 1973 Arab oil embargo, when first the United Arab Emirates and then Saudi Arabia, Kuwait and others deployed a mix of output cuts and export bans to punish Western support for Israel.

Analysts say there appears little risk to exports as long as the conflict remains contained in Israel and Palestinian areas. But wider regional conflict could send prices soaring.

"Clearly there remains a risk to the oil market, and in order to quantify that risk it is important to point out that if there was an oil embargo, we are probably talking about oil prices in excess of $100 a barrel," said GNI.

"We would therefore advise clients to be extremely cautious, particularly heading into the weekend."

In the Middle East, Israeli forces were on high alert for Palestinian protests and possible guerrilla attacks after an explosion of violence that has all but killed off peacemaking.

Palestinian leader Yasser Arafat rejected peace talks until Israel halted military action, as the United States, its peace efforts in tatters, nursed its wounds from the apparent suicide attack on U.S. Navy destroyer the USS Cole that killed six U.S. sailors and injured 35.

Israeli helicopter gunships on Thursday fired missiles at Palestinian targets in the West Bank city of Ramallah and in Gaza to avenge the lynching of two Israeli soldiers by a Palestinian mob.

Israeli leaders called the raids a limited response to a "hideous crime" and said the operation had been completed. Palestinians described the attacks as all-out war.

Even before the latest unrest, oil markets had been rising amid worries that low U.S. heating oil inventories may prove insufficient to keep American households warm this winter.

The market has taken little comfort from word that Saudi Arabia is keeping November crude export allocations at full contractual volumes, unchanged from last month under its pledge to boost supplies to cool prices.

Since Saudi Arabia has the vast majority of OPEC's spare production capacity, its output moves are closely watched by traders struggling to track the kingdom's exact supply levels

http://news.excite.com/news/r/001013/08/news-markets-oil-dc

-- Martin Thompson (mthom1927@aol.com), October 13, 2000


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