World oil prices forged to their highest level for 13 years on Tuesday as violence in the Middle East and low U.S. fuel stocks stoked concern over world supplies.
London’s Brent crude surged 84 cents to $35.32, its highest level since the Gulf War following the weekend killings of five Western workers at a Saudi chemicals plant in Yanbu.
The International Energy Agency (IEA), energy adviser to 26 industrialized nations, has warned that high oil prices could “inflict substantial damage on the economies of oil-importing countries and on the global economy.”
U.S. light crude fell four cents to $38.17 a barrel after climbing more than 80 cents on Monday when London markets were closed for a public holiday.
Attacks in Saudi Arabia and other major producers intensify concern over supply security from the Middle East, which accounts for roughly a third of global oil production.
The Yanbu attack has heightened fears militants might target oil infrastructure in Saudi Arabia, the world’s top crude exporter, where energy facilities are tightly protected.
“The rampage occurred away from the major oil installations but (was) nonetheless alarming,” said brokers Refco in a report. “This could be a portent of further disasters.”
Barely a week ago U.S.-led forces foiled a coordinated seaborne attempt by suicide bombers at the key Basra oil export terminal in southern Iraq.
Rising Chinese demand and low U.S. fuel inventories have fuelled oil’s rally which has pushed prices up by $12 a barrel, or more than 50 percent, from this time last year.
The International Energy Agency said there was no relief in sight from high prices.
“The hike in futures prices during the past several months implies that recent oil price rises could be sustained. If that is the case, the macroeconomic consequences for importing countries could be painful,” the IEA said on Monday.
OPEC oil ministers, who control around 40 percent of world exports, have said that the price surge is driven by forces out of their hands.
The group cut production quotas by four percent to 23.5 million barrels per day (bpd) from April 1. Kuwait’s oil minister said on Monday that high oil prices would encourage the cartel to keep pumping above official output limits.
Fellow Gulf producer, United Arab Emirates, said OPEC might raise official output quotas in the third quarter to replenish stocks. OPEC ministers are due to meet on June 3 in Beirut to review production policy.
“The organization does not mind increasing production and changing the output ceiling if there is a need, and any alteration would take into account price levels and strategic stockpiles,” UAE Oil Minister Obaid bin Saif al-Nasseri said.
Fears that new U.S. environmental rules may stop refiners producing enough gasoline to meet holiday driving demand have fuelled oil’s price rise.
In a Reuters survey on Monday, eight analysts predicted that U.S. gasoline stocks would show a rise of 1.7 million barrels when the government Energy Information Administration (EIA) releases its weekly report on U.S. fuel stockpiles on Wednesday.
The survey forecast crude supplies to rise by 1.5 million barrels in the week to April 30 despite refineries raising production rates to pump out gasoline before the traditional start to summer holidays on Memorial Day at the end of May.