World oil prices slipped on Friday afternoon as traders kept a nervous eye on developments in the Middle East and analysts warned that another regional flare-up could send prices skyrocketing again.
Brent North Sea crude for November delivery eased down to 33.80 dollars a barrel from 34.59 dollars overnight after an early spike upwards, while in New York light sweet crude fell 66 cents from its overnight close to 35.40 dollars a barrel.
But despite Friday's declines, oil prices remain within striking distance of the 10-year highs set during extraordinary trading on Thursday, when the spectre of a war in the Middle East sent crude futures spiralling some nine percent.
"Thursday was quite wild with Gulf War-type movements to the upside and today it has just eased back probably because there has been no follow-through reaction from the Israelis and Palestinians," said Prudential Bache analyst Tony Machacek.
The big fear remains that oil-producing Arab states could be drawn into the fray on the side of the Palestinians, and use oil supplies as a political stick to beat Israel's allies in the West. Already, US and British targets in the Gulf have been targeted in suspected terrorist attacks, raising concerns of a wider crisis.
Trading was quiet on Friday afternoon because dealers did not want to take up positions that would look outlandish come Monday morning. "If there is any development in either direction over the weekend, if there is a reduction in tension or escalation it will be immediately reflected in the oil price on Monday," said Machacek.
The sight of Israeli helicopter gunships blasting away at Palestinian targets set alarm bells ringing on Thursday, particularly as world number one oil producer Saudi Arabia had just warned Israel that it would risk pan-Arab wrath if it cracked down on Palestinians insurgents.
A suspected terrorist attack on a US warship only served to exacerbate the frenzy in oil markets, and a second blast at the British embassy in Aden early on Friday sent oil prices in London close to 35 dollars again.
Analysts have warned that if the Arab world resorts to an oil embargo to put pressure on the West, where oil reserves are already at precariously low levels, then Thursday's vertiginous rise would look like a mere blip. "It is important to point out that if there was an (Arab) oil embargo we are probably talking about oil prices in excess of 100 dollars a barrel," said the GNI brokerage in a research note.
"While it is presently believed that the risk to oil supplies in the west is small, clearly there is a risk and any increase in tensions increase that threat, justifying a rise in the oil price," GNI said. Prudential's Machacek said if Saudi Arabia and other Arab oil exporters were drawn into the conflict equation, "certainly 40 dollars is quite easily achievable and maybe well above that.
"But you'd have to know who was embargoing and how many barrels before you made any estimates," he added. The Middle East turmoil has exacerbated an already extremely tight oil market. Concerns that supply might struggle to meet demand if the winter turned out to be cold had already sent prices to levels not seen since the 1990 Gulf War during September. – (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)