World oil prices skyrocketed Thursday to 10-year highs above 35 dollars a barrel amid acute market nervousness over a dramatic escalation of the Middle East crisis.
Prices surged more than 10 percent, before easing back sharply below 34 dollars in a trading frenzy that was sparked by Israeli rocket attacks on Palestinian targets and a blast on a US destroyer in the Gulf, possibly caused by a terrorist attack.
"The market has just gone crazy," said Royal Bank of Scotland analyst Andrew Hartree. "It's a combination of Israel going ballistic and of the US destroyer." The violence in the West Bank and Gaza Strip and the incident involving the US warship in Aden sent investors clamouring for oil, which is already in short supply as winter approaches.
In London, the Brent North Sea benchmark crude, which had closed at 31.79 dollars a barrel on Wednesday, surged more than 11 percent to 35.30 dollars, before easing back to 33.50 dollars by late afternoon.
In New York, the price of light sweet crude for the November delivery contract firmed more than three dollars to 36.40 dollars before softening, as investors fretted that events in the Middle East could interrupt supplies from the vital producer region.
The first upward spike in prices hit screens early Thursday afternoon as the news that a US destroyer had been involved in an explosion in the Yemeni port of Aden filtered through. An inflatable rubber raft rammed the guided missile destroyer, killing at least four US sailors.
The White House said it did not rule out a terrorist attack, and rumours coursed through the market that the Middle East conflict was about to spread beyond the confines of Palestine.
"With a symbolic attack on a US military target, the fear is that you have an aggressive terrorist presence," said Salomon Smith Barney oil analyst Gignoux said. "This combined with level of uncertainty in Israel and Palestine was the last thing you needed."
Soon after the destroyer incident, Israel's furious revenge attacks on Palestinian targets in the West Bank and Gaza Strip sent the oil market into a frenzy.
The helicopter attacks were aimed at avenging the deaths of two Israeli soldiers, lynched by a Palestinian crowd whipped into a fury by more than two weeks of violence that has killed more than 100 people, the vast majority Palestinians.
The market remains concerned that the escalating crisis will draw in regional power brokers such as Saudi Arabia, the world's number one oil producer and kingpin of the Organisation of Petroleum Exporting Countries (OPEC).
Riyadh has already issued a cryptic warning to Israel not to overreact in dealing with the Palestinian crisis, and though observers feel it will not resort to oil market tactics to express its disgust, the risk to supply interruptions remains heightened.
"If OPEC supplies get disrupted against a backdrop of tight fundamentals then you are looking at the risk of another spike in prices," said analyst Nick Bennenbroek at Deutsche Bank.
"These heightened tensions come on top of tight fundamentals, including inventory levels lower than usual, high refinery rates, and colder weather patterns," he told AFP.
Oil prices soared to levels not seen since the 1990 Gulf War in September. The market was concerned that supply might struggle to meet demand if the winter turned out to be cold because oil stocks were at chronically low levels.
Prices had since eased after OPEC promised to boost its output and Washington decided to mobilise a strategic petroleum reserve, but the market remains highly volatile because of the tight supply. "There isn't much room for margin for error. There is not much of a buffer," said Bennenbroek. – (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)