Anxiety about the security of Middle East supplies and the general climate of uncertainty created by the attacks in Saudi Arabia were exacerbated by a series of further suicide bombings in Morocco on 17 May and warnings of more terrorism to come. The US, the UK and Germany all closed their diplomatic missions in Saudi Arabia to the public on 20 May in the light of intelligence suggesting that another attack was imminent.

In Iraq, progress in creating the political conditions for oil sales to resume is not being matched on the ground. The US and the UK introduced a second draft resolution in the UN Security Council on 19 May, addressing some Russian and French concerns over the lifting of sanctions on Baghdad. The draft resolution stated that the coalition will remain in charge 'until an internationally recognised, representative government is established by the people of Iraq and assumes [its] responsibilities'.

However, the restoration of oil exports appears far off. Iraq is pumping only about 200,000 barrels a day (b/d) at present, compared with a 2002 average of about 2 million b/d, and faces fuel shortages. Thamir Ghadhban, appointed in early May as chief executive of the oil industry's interim management team, on 19 May pushed back the target date for production of 1.3 million b/d to mid-July, and warned that even this might be over-ambitious. 'In some areas it is getting worse rather than better,' he said. 'What we anticipate on production may not be attainable if the security situation makes repairs impossible.' The situation is worst in the south of the country. The southern Rumaila field is only pumping 80,000 b/d.

Below-average US stock levels are making the market particularly sensitive to supply fears. Import levels have been consistently high in recent weeks but the crude is being snapped up by refiners, cranking up runs in preparation for the seasonal surge in demand. The Memorial Day holiday weekend in late May heralds the start of the holiday driving season. US crude stocks rose by a marginal 0.2 per cent to 285.1 million barrels in the week to 16 May - 12.4 per cent lower than a year earlier despite imports of 10.1 million b/d. Imports look set to fall in the coming weeks given that Saudi Arabia has signalled its intention to abide by the production cuts agreed at OPEC's April meeting by informing customers that exports will be up to a quarter lower in June.