US oil hits record, creeps towards $44 per barrel

03 Aug, 2004

US oil prices struck a new 21-year peak on Monday, climbing close to $44 a barrel after the United States raised its security alert to high for a possible al Qaeda attack on a top financial institution.
Dealers said the increased security threat was boosting the market, which is already worried by possible sabotage strikes on oil infrastructure in the Middle East at a time when producers are pumping close to full tilt to supply soaring oil demand.
US light crude hit a peak at $43.92 a barrel, marking a gain of 12 cents over on Friday's settlement and the highest level reached since oil futures were launched on the New York Mercantile Exchange in 1983.
US crude was down 10 cents at $43.70 a barrel. "The market is pinned to the upside when you look at the trend. There's not much negative out there to bring prices down," said John Brady at ABN Amro in New York.
"The threat alert is bringing more confusion and uncertainty into the market." Washington said on Sunday that intelligence signalled a possible al Qaeda attack and declared a high level threat alert on the World Bank and the International Monetary Fund, as well as the New York Stock Exchange and other financial institutions such as Citicorp and Prudential Financial.
The head of oil giant BP Plc. forecast at the weekend that oil prices were unlikely to decline any time soon. "What with the insecurity of supply, the price seems to be holding up quite high," BP chief executive John Browne told BBC Television on Sunday. "One day it will come down, but not in the very short term I'm afraid."
Tony Nunan, manager at Mitsubishi Corp's international petroleum business in Tokyo, said any strike may bring prices down, as happened after the September 11, 2001 plane attacks on the World Trade Centre and the Pentagon US.
Crude prices briefly spiked a couple of dollars close to $30 a barrel following those attacks but came crashing down to the low $20s soon after along with financial markets.
"After 9/11 people were afraid and stopped travelling. They stopped consuming because of the uncertainty. If the target is in a consuming nation, you would expect an attack to affect the market to the downside," said Nunan.
US Oil rallied on Friday to a peak at $43.85, driven by concerns that financial turmoil at Russia's YUKOS might cut exports from the world's second-biggest supplier. YUKOS has said it could collapse by mid-August because of a freeze on its bank accounts and assets over a $3.4 billion tax bill.
Russian bailiffs on Friday gave YUKOS a month to pay the debt. London's Brent crude rose above $40 to a fresh 14-year high at $40.05 a barrel.
Oil dealers say any disruption to Russian exports would stretch already tight global stockpiles and leave the Opec producers' group with little power to counter any supply squeeze.
"We believe the news from Russia will intensify concerns over the lack of spare capacity in the international oil system, as Opec is pumping flat out to meet strong global demand growth," Gordon Wan at Kingsway Financial Services Group Ltd in Hong Kong said in a recent research note.

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