Oil prices jolt higher after Saudi bomb attack

Oil prices jolt higher after Saudi bomb attack

LONDON (Reuter): Oil prices were jolted higher yesterday after a car bomb at a military complex in Saudi Arabia killed 18 Americans and triggered fresh concerns about the political stability of the world's leading oil exporting nation.

London August futures for international benchmark North Sea Brent blend rose 15 cents to US$18.23 a barrel.

Oil markets are sensitive to events in the kingdom, dominant member of the Organization of Petroleum Exporting Countries (OPEC) and a key regional ally of the United States.

"In the short term there's no real concern for oil markets because there's no immediate impact on supplies," said analyst Mehdi Varzi at finance house Kleinwort Benson.

"But at a time when world oil demand is rising, and if these worries persist, I think the market may be forced to start factoring in the possibility, in the medium to long term, of another oil shock in the Middle East."

A spate of guerrilla attacks in Bahrain, the election victory in Israel of rightwinger Benjamin Netanyahu and a Turkish-Israeli pact have all helped raise the political temperature across the Middle East, Varzi said.

A bomb blast tore through the King Abdul-Aziz Air Base in Khobar near Dhahran in eastern Saudi Arabia where 2,900 Americans are stationed. It was the second bombing targeting Americans in Saudi Arabia in the past year.

Saudi oil supplies were not disrupted by the blast. Oil production of some eight million barrels per day (bpd), 11 percent of world demand, and exports of about six million bpd continued as normal yesterday, well informed oil and shipping sources said.

The Dhahran headquarters of state oil firm Saudi Aramco were well away from the impact of the bomb, oil sources said.

But security at export terminals may be stepped up in coming days to ensure there is no disruption to the exports, which earn Riyadh more than $40 billion a year.

Traders said they believed Saudi oil exports were secure though much might depend on how the United States reacts and whether the explosion was linked to any internal strife.

Saudi Arabia's ruling royal family until recently appeared immune to the type of Islamic fundamentalist militancy prevalent elsewhere. But regional analysts have said political violence might spill into the kingdom.

Over the past 20 years events in the Middle East have triggered an oil price shock on three occasions.

The Arab oil embargo of 1973 and Iran's Islamic revolution sent oil prices rocketing to $40 a barrel. Iraq's invasion of Kuwait in 1990 briefly pushed oil back to $40 for fear of a disruption to Saudi supplies.

"Middle East developments have been primarily responsible for oil price shocks," said Kleinwort's Varzi. "It would be dangerous to ignore the potential impact that another Middle East crisis could have on the oil market."

In November last year five Americans and two Indians were killed in an explosion in a car park near a U.S.-run military training center in the Saudi capital, Riyadh.

In May four Saudis were executed for the Riyadh killings and a Saudi source said the guerrillas were influenced by a Moslem cleric in Jordan allegedly linked to a radical Islamic group.

Oil prices were jolted higher late last year when Saudi King Fahd suffered a stroke and temporarily handed affairs of state to his half brother, Crown Prince Abdullah.