Tanker fires up tense market

11 October 2002

The 6 October explosion on the Limburg tanker just off the Yemeni coast had an instant impact on oil prices, pushing Brent crude to more than $31 a barrel, although prices softened later in the week to about $28 a barrel. The fall led the OPEC basket of crudes to sink back into the organisation's target price band of $22-28 a barrel, after 11 consecutive trading days above the preferred price ceiling.

While it is still unclear whether the explosion was the result of a deliberate attack or an onboard accident, it has prompted fears of a renewed Al-Qaeda campaign against Western interests. It also recollects the attack on the USS Cole in Aden harbour in October 2000. Washington issued warnings earlier this year that Indian Ocean shipping, particularly oil tankers, could become targets for Islamic militants aiming to strike at the economy.

The return of the oil price to the target band precludes OPEC from a difficult decision. It had agreed a mechanism to alter production levels if the price was outside the band for more than 20 consecutive days. However, several OPEC ministers have claimed the mechanism does not apply because the price is artificially high due to political tension in the region.

Threats of a US attack on Iraq, the main cause of market tension, continued in early October, with US President Bush pressing Congress to support military action. However, apparent disagreements within the UN Security Council over a resolution to use force against Iraq are spinning out the debate.

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