Oil price could soar above $40 a barrel

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Oil price could soar above $40 a barrel

Special report: Terrorism in the US

Oliver Morgan, industrial editor Sunday September 16, 2001 The Observer

Crude oil prices could soar through $40 a barrel if the Middle East crisis escalates into widespread military reprisals for the terrorist attacks on the United States, warn market experts. The warnings come after a frantic end to the week on the London International Petroleum exchange, which saw prices for benchmark November Brent crude close up at $29.43, after finishing the day before the strikes at $27.37.

Brokers said major oil companies entered the market to make purchases, fearing they could be caught short by immediate US action, while traders indicated their extreme nervousness by taking long positions in case President George Bush launched military reprisals this weekend.

Peter Gignoux of Schroder Salomon Smith Barney said: 'Oil companies are buying real barrels of oil in substantial volumes, which tells you they are uncertain about the future of supply.'

Christopher Bellew, energy director for US securities house Prudential-Bache said: 'I think in a worst-case scenario we could see a sharp spike in the price which could go to $40 or more.

'If you had no Iraqi exports and other producers holding back and, for example, threats to [the] shipping and movement of oil, you could see that happen.'

So far the Organisation of Petroleum Exporting Countries (Opec) has said it will keep the price in its $22 to $28 band. Saudi Arabia might make up any shortfalls.

But bellicose US statements about Iraq and other nations, as well as continuing disputes over United Nations oil sanctions threaten to disrupt Saddam Hussein's exports of 2.3m barrels a day.

Leo Drollas of the Centre for Global Energy Studies, said much depended on what response Bush ordered, and how Opec reacted. If Opec was hostile 'you could see $35 to $40 a barrel and beyond'.


-- Martin Thompson (mthom1927@aol.com), September 16, 2001

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