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Crude reaches record $42.33

NEW YORK - Crude oil futures in New York rose above $42 a barrel for the first time after Saturday's killings of 22 people in a key Saudi Arabian oil-producing region raised concern that attacks might disrupt shipments.

The violence comes at a time when Saudi Arabia, the world's biggest exporter and OPEC's most influential member, is trying to increase the supply of oil to ease prices.

Saudi Arabia's influential oil minister tried to reassure markets yesterday that the Organization of the Petroleum Exporting Countries would do its best to provide adequate supplies.

"OPEC will do everything it can to make the fundamentals right," Saudi Arabian Oil Minister Ali al-Naimi said in Beirut, Lebanon, where the group is to meet tomorrow to consider increases in production.

Saudi Arabia was boosting its own production, but not because the United States had pressured it to do so, al-Naimi said. He reiterated that he would push OPEC to raise its output ceiling by 2.5 million barrels a day, or 11 percent, at the meeting.

The cartel pumps more than one-third of the world's oil, and its talks in the Lebanese capital are drawing exceptional attention. Crude prices have soared to uncomfortable heights in recent weeks because of a combination of strong global demand, low inventories in importing nations and fears about instability in key oil-producing states in the Middle East.

However, the weekend attacks at the eastern Saudi oil center of Khobar that left 22 people dead, most of them foreigners, have caused fresh alarm by exacerbating fears that terrorists could cripple the kingdom's ability to export crude. Saudi Arabia is the world's leading crude exporter and the only producer with significant spare capacity to pump more oil.

The attack was the second terrorist strike in a month on an oil-related target in Saudi Arabia, and its effects rippled to neighboring oil producers in the Persian Gulf. Asked if Kuwait had strengthened security at its own oil facilities as a result, Kuwaiti Oil Minister Sheik Ahmed Fahd Al Ahmed Al Sabah replied, "Sure, sure, sure."

Qatari Oil Minister Abdullah bin Hamad Al Attiyah said his country is "always taking measures" to improve security. Neither he nor Sheik Ahmed gave details.

Oil prices surged yesterday, the first day of trading on major markets since the Khobar attack. U.S. light crude for July delivery climbed to $42.33 - the highest close since trading began in 1983, and a rise of $2.45 from Friday's close on the New York Mercantile Exchange.

On the International Petroleum Exchange in London, July contracts of Brent crude peaked at $39.12 before settling at $39.08 - their highest in 13 1/2 years and $2.48 higher than Friday.

Both markets were closed Monday for holidays.

Al-Naimi reaffirmed that Saudi Arabia is committed to a proposal his country announced in Amsterdam, Netherlands, last week. That proposal included Saudi Arabia increasing its output to 9 million barrels a day this month. It also included OPEC increasing its output quotas by more than 2 million barrels a day.

Saudi Arabia probably pumped 8.6 million barrels a day last month compared with 8.3 million barrels a day in April, according to PetroLogistics Ltd.

Saudi Aramco, the world's largest oil company by output, said Sunday that it was loading oil tankers and exporting crude as normal after the attack. The Saudi oil industry is centered in the Eastern Province, where the weekend attack occurred.

Many in OPEC argue that geopolitical tensions and heavy speculative trading on futures markets have driven prices far beyond what the actual demand for oil would seem to justify. OPEC members are haunted by memories of the price crash that followed their 1997 decision to raise production just before the Asian financial crisis undercut demand.

Shamkhi Faraj, the head of Iraq's State Oil Marketing Organization and the leader of Iraq's delegation to the Beirut meeting, said "recent incidents in the Gulf and Iraq are among the main reasons behind the price increase."

Qatar's Al Attiyah estimated that security fears alone have added $9 to the price of a barrel of oil. Sheik Ahmed of Kuwait said "$30 [would] be the fair price" and the current high prices are "temporary."

Saudi Arabia was among those who argued as late as March for a reduction in OPEC output to forestall an expected decline in seasonal demand. However, the surprise increase in prices has led the Saudis to urge a reversal in strategy. If prices stay high for too long, consumers could seek alternatives to oil, and non-OPEC producers could glut the market with their own crude.

Al-Naimi answered with a simple "yes" when asked if Saudi Arabia still supported the 11 percent increase in OPEC's output ceiling that he proposed late May. The idea was opposed by Venezuela and other OPEC members who worry that prices might fall as a result, but industry analysts expected al-Naimi to prevail.

In Washington, Secretary of State Colin L. Powell said he has no doubt about the Saudis' ability to continue to be a reliable oil supply source.

"They have been doing a great deal in recent months and I would expect them to do more," Powell told reporters during a question-and-answer session in Washington. "I have confidence in the ability of the Saudi Arabians to continue to provide a secure flow of oil products."

Kuwait's Sheik Ahmed said he supported increasing OPEC's ceiling by 2 million barrels. However, OPEC is already pumping 2.3 million barrels above its existing ceiling of 23.5 million barrels, and some analysts have questioned the usefulness of a move that might merely legitimize much of OPEC's current overproduction.

"It's another sort of empty gesture if the market doesn't see actual production of additional oil," said Martin Purvis of Wood Mackenzie Consultants in Edinburgh, Scotland.

The Associated Press and Bloomberg News contributed to this article.

Copyright © 2015, The Baltimore Sun
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