May 7, 2004

The price of oil hit 40 dollars a barrel in New York for the first time in over 13 years on fears of terrorist strikes in the Middle East and US gasoline shortages, traders said.

The price of light sweet crude for delivery in June spiked up to the symbolic 40-dollar threshold briefly just minutes after the opening of trading, but failed to sustain the move.

The last time prices were so high was in October 1990 after Iraqi troops rolled into Kuwait.

The contract later stood at 39.54 dollars, up 17 cents from the previous close.

"It had been creeping up towards 40 dollars for the last three days, and many people made the bet that it would hit 40 before the weekend," said Oppenheimer market analyst Fadel Gheit.

Traders were unwilling to go home for the weekend with insufficient oil contracts.

"They remember what can happen over the weekend. Last weekend, there was a terrorist attack in Saudi Arabia and it pushed up oil prices by almost two dollars in the following two days," Gheit said.

Crude prices were also being infected by a feverish gasoline market, with fuel stocks low ahead of the so-called "summer driving season" in the United States when motorists flock to the roads, analysts said.

In London, the price of a barrel of Brent North Sea crude oil for June delivery headed up towards new 13-year highs, rising 40 cents to 36.93 dollars in late deals.

World oil prices have soared since gunmen attacked a Saudi oil facility at Yanbu port on May 1, killing five staff of the Swiss engineering group ABB and a Saudi national guard.

Saudi Arabia, the world's number one oil exporter, has been hit by a series of terrorist strikes that began a year ago with the bombing of three residential compounds in the capital Riyadh.

The previous weekend, the main Iraqi export terminal in Basra came under attack, stoking concerns about the security of the country's supplies, which have recovered to close to levels seen ahead of last year's war.

The outlook for stability in Iraq had deteriorated since the publication of photographs apparently showing US troops humiliating naked and bound Iraqi prisoners at the Abu Ghraib prison near Baghdad, Gheit said.

"The terrorists have a waiting line for volunteers," he said.

"It is really backfiring big time on us."

Economists warned that surging oil prices were darkening an otherwise optimistic outlook for the US engine of global economic growth.

"The high energy prices we're seeing today are unwelcome and they're unhelpful," US Treasury Secretary John Snow said.

"We've leaned strongly against any actions on the part of OPEC to restrict supply, to reduce output, to reduce the quotas," he told CNBC television.

However, OPEC president Purnomo Yusgiantoro of Indonesia said earlier this week members of the cartel were exceeding their production ceiling by 1.5 million barrels a day.

He blamed the surge in prices on the recent terrorist attack in Saudi Arabia, turmoil in Iraq and a oil workers' strike in Nigeria.

"In the real world, OPEC (members) are under no pressure to intervene," said GNI-Man Financial trader Keith Pascall in London.

"They keep saying there is enough oil supply on the market, so there is no concern on their part."

OPEC agreed in March to cut daily output quotas by one million barrels to 23.5 million from April 1.

The grouping's next scheduled meeting will be on June 3 in Beirut, though at least some ministers will have a chance to discuss the market in Amsterdam on May 21 on the sidelines of an energy conference.

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