Oil price hits 21-year high of $42 after Saudi attack by al-Qa'ida

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The Independent Online

Oil prices leapt to a new 21-year high of $42 a barrel in US trading yesterday as markets reacted to the growing signs of instability in Saudi Arabia, the world's biggest exporter.

Oil prices leapt to a new 21-year high of $42 a barrel in US trading yesterday as markets reacted to the growing signs of instability in Saudi Arabia, the world's biggest exporter.

Opec warned there was little it could do to bring down the price as further signs emerged of a split in the oil producers' cartel. Qatar's oil minister Abdullah al-Attiyah said the "fear factor" surrounding a possible disruption of supplies from the Middle East was inflating crude by $9 a barrel.

After the holiday in the UK and US on Monday, yesterday was the first opportunity for the two leading oil trading markets to react to the terrorist attack in Saudi Arabia over the weekend - the second such outrage in a month. London Brent crude traded in London set a 13-year high of $38.97 a barrel, up $2.39. US light crude rose $2.45, or 6 per cent, to end at an all-time high for the contract of $42.33.

Dealers said that if the markets could panic over an attack that did not disrupt oil supplies from Saudi Arabia, then any terrorist assault on the kingdom's major oil facilities would send the oil price into "orbit".

Adam Sieminski, an analyst at Deutsche Bank in London, warned that a serious disruption of oil from Saudi Arabia could send the price to $100 a barrel. "It is critical not to have a problem in Saudi Arabia because that is where the spare capacity lies," Mr Sieminski said. He added that the markets were pricing in perhaps a 5 per cent possibility of $100 oil now.

Saudi Arabia has two-thirds of the capacity within Opec to pump out more oil. Producers outside the cartel have very little spare capacity. Opec is already producing more than two million barrels per day above its existing formal ceiling of 23.5 million bpd quota.

The organisation meets later this week when Saudi Arabia will press members to legitimise the current breach of the ceiling by raising the quota by 2.5 million bpd or 11 per cent more. However, many Opec members are against increased output, as it would mean lower prices and only Saudi Arabia would be able to produce significantly more oil to compensate. Saudi Arabia is believed to already be pumping out 9 million bpd day; the kingdom has a maximum capacity of 10.5 million bpd.

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