Bombs disperse bears

20 November 2003
Oil prices spiked to more than $30 a barrel in reaction to the 9 November Riyadh bombings, as fears were raised about security of supply from the world's largest exporter. Even though market calm was swiftly restored, prices stayed above the $28-a-barrel mark on bullish US stock data. Brent was trading at $28.60 on 12 November compared with $27.32 a week earlier.

The suicide attacks in the Saudi capital, which left more than 10 people dead, caused jitters among traders. However, terrorist threats in the kingdom are nothing new and have yet to cause any interruptions to oil exports. Prices quickly slipped again to the now-habitual resting place around the $28 mark, which has prevailed since September.

The most recent US inventory data, for the week to 31 October, showed static crude stocks and a heating oil drawdown, keeping prices at the upper end of their recent fluctuations. Forecasts of an end to unseasonably mild weather contributed to the rise. 'The short-term path of oil prices is inevitably going to be heavily influenced by weather patterns,' says Paul Horsnell, analyst at Barclays Capital.'It is the nature of the US winter that has the greatest impact on sentiment.'

Gasoline demand remains strong. While early November is traditionally a low point for stocks, the supply/demand balance is tighter than in previous years.

OPEC had a softening impact on prices through both actions and words. Preliminary data for October showed that production, including Iraq, increased by more than 200,000 barrels a day (b/d) to about 27.5 million b/d over the month. Traders reported large movements of crude leaving the Middle East for Asia in early November, suggesting that OPEC members may not be adhering to their 1 November production cut. Various members of the group are also becoming increasingly vocal in their determination to secure a higher output quota, most notably Libya and Nigeria.

Encouraging signs are coming from Iraq on the oil, if not security, front. Iraq accounted for most of the October OPEC production surge. Exports were running at about 1.4 million b/d in early November. A security force is being created to guard the northern Kirkuk-Ceyhan export pipeline ahead of its prospective restart.

'We're setting up a taskforce to protect the oil and power infrastructure and I expect that force to be functioning by a deadline of November 15,' said a US military spokesman on 11 November. Earlier in the month, the large southern Majnoon field was brought back into production for the first time since the coalition invasion in March.

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