Oil prices spurted back above 33 dollars a barrel on Friday as tension between Iraq and Kuwait threatened oil supplies this winter.
The price of benchmark North Sea Brent crude for November delivery bounced up to 33.56 dollars in late dealing here on Friday, as the Middle East tensions and the threat of a hurricane in the Gulf of Mexico raised fresh supply-side concerns.
The immediate effect of skyrocketing prices has been a string of protests at the soaring cost of fuel in Europe, with pickets and blockades spreading across the continent despite dying out in hard-hit Britain on Friday.
In the longer run, economists fear that rising energy costs will start to filter through into inflation, hampering world growth. World Bank President James Wolfensohn said in an interview Friday that global growth could be cut by 0.5 percentage points if the oil rally persists.
Developing nations would suffer even more, he told the International Herald Tribune.
Yet oil prices have showed no signs in recent days of easing, at one point even surging to the highest levels since the last time Iraq went to war with Kuwait in 1990.
The main reason has been concern that low stock levels will be unable to meet demand as the northern hemisphere winter looms.
The Organisation of Petroleum Exporting Countries (OPEC), which includes both Iraq and Kuwait, has said it is willing to increase output to bear down on prices.
But analysts remains unsure whether an 800,000-barrels-per-day commitment will be sufficient to cool an overheating market.
"We have gone through a turbulent week," said Prudential Bache analyst Tony Machacek. "The basic fundamentals are still the same -- the tightness of the market. A possible comeback to 35 dollars is not far off."
Against this backdrop, any chance of supply disruption from the Middle East will only stoke up further pressures on the market, analysts said.
The latest tension flared up on Thursday, when Iraqi Oil Minister Amer Rashid accused Kuwait of stealing oil from two fields close to the border between the two countries, a charge that sparked Baghdad's invasion of the emirate in 1990.
Kuwait launched a counter attack, asserting that the disputed land was Kuwaiti territory and accusing Iraq of trying to plunge the Gulf region into "new wars and crises."
GNI brokerage analyst Lawrence Eagles said that while the US presence in the region made all-out war an unlikely possibility, it could provoke Iraq into withdrawing oil from the market this winter just to spite Washington.
Traders "feel that while military action isn't in any way a possibility there is always the possibility that some form of protest is launched by Iraq by refusing to sell its oil," Eagles told AFP. "I think that's a greater risk."
Oil supplies faced a further threat from a tropical storm near Mexico's Yucatan peninsula which could be upgraded to Hurricane status in the next three days and US production in the Gulf of Mexico, analysts said.
"While there is a still a weather threat it will add support to prices," said Eagles.—AFP.
©--Agence France Presse.
© 2000 Mena Report (www.menareport.com )