The price of oil see-sawed above 32 dollars a barrel here on Monday as markets nervously watched the first day of a critical summit in Sharm el-Sheikh for signs of a breakthrough in the troubled Middle East peace process.
The benchmark Brent North Sea crude oil for November delivery climbed to 32.97 dollars a barrel before settling at 32.37 dollars, against 32.52 dollars at the close on Friday.
In initial trading it had dipped briefly below 32.00 dollars.
In New York, the November contract for light sweet crude fell back to 34.05 dollars from 34.99 in early trading.
Prices were volatile amid concern that oil-producing Gulf Arab states might be drawn into the Israeli-Palestinian stand-off and withhold supplies in support of the Palestinians.
A warning from the world's biggest producer, Saudi Arabia, last week that Gulf Arab states would not stand by while Israel made "the slightest intolerable step" against the Palestinians haunted the market.
"There is a growing fear that the world is experiencing a repeat of 1973, when Arab countries imposed an oil embargo on those consuming countries that supported Israel in its war with Egypt," the Centre for Global Energy Studies said in its Monthly Oil Report published on Monday.
But the London-based research group said that most leading oil-producing nations were unlikely to repeat the embargo because they "are aware of the damage they inflicted upon themselves by their use of the oil weapon."
Iraq might be tempted to "wreak havoc" by unilaterally halting its exports, the CGES said, although this "would further isolate Iraq and undermine support for a general lifting of sanctions (against Iraq)," it added.
Oil futures surged by around nine percent to 10-year highs above 35 dollars a barrel on Thursday as fears of all-out war between Israel and the Palestinians deepened. An attack on a US destroyer in the Gulf only served to heighten the market frenzy.
But prices fell back sharply on Friday as Palestinian leaders indicated they were ready to join the proposed summit in Egypt. All eyes were firmly fixed on the talks for signs of progress towards a return to peace.
The market shrugged at news that workers at the Venezuelan state oil company Petroleos de Venezuela (PDVSA) had signed an agreement over the weekend ending their three-day strike, which GNI analyst Lawrence Eagles said had been "overshadowed" by the Middle East conflict.
News on Saturday that the United States had begun pumping oil from its strategic reserve for release to international buyers three weeks ahead of schedule also did little to sway market sentiment.
Beyond the Middle East conflict, the shortage of crude oil stocks that caused oil prices to spike to 10-year highs in September remained.
"Whatever happens, the oil market will remain tight over the coming winter," said the CGES. "Consumers have already begun to stockpile heating oil and are expected to keep tanks nearly full while fears of a supply disruption remain."
But Brent prices will slump to under 12 dollars a barrel by the fourth quarter of 2001 unless the Organisation of Petroleum Exporting Countries (OPEC) cuts its output, the CGES said in its report.
It estimated that OPEC would need to reduce its output by 1.8 million barrels a day from the start of the second quarter of 2001 "to bring the annual average price close to the 25 dollars a barrel level OPEC appears to want."--AFP
© 2000 Mena Report (www.menareport.com)