Oil rises on Saudi bombings, IEA signal subdues gains

Oil rises on Saudi bombings, IEA signal subdues gains

Reuters, London

Oil prices climbed on Tuesday after a series of suicide bombings ripped through residential compounds for Westerners in the Saudi capital Riyadh.

U.S. light crude climbed by 25 cents to US$27.60 a barrel, while London's Brent crude rose 29 cents to $25.18.

Traders and analysts said any attack in Riyadh was bound to raise anxiety over security of supply from the world's largest oil exporter.

"Anything that happens within Saudi Arabia is relevant to the oil market and will move the price," said J.P. Morgan's Paul Horsnell.

"But it's a relatively muted reaction. There's no particular suggestion of any instabilities within the Saudi regime."

Early reports said that up to 10 people were killed and more than 160 U.S. and other nationals had been wounded after a series of suicide attacks on foreigners' compounds in Riyadh late on Monday.

But U.S. Secretary of State Colin Powell, speaking shortly after his arrival at Riyadh as part of a Middle Eastern tour, said 10 Americans and a large number of other nationals had been killed.

Powell has also said the anti-Western attacks in the birthplace of Islam bore the stamp of al Qaeda and its Saudi-born leader Osama bin Laden. Al Qaeda was blamed for the September 2001 air suicide attacks in the United States.

Saudi Arabia is the biggest exporter of crude oil to the world's 77 million barrel-per-day market, with an estimated production capacity of 10.5 million bpd.

Analysts said Tuesday's gains were tempered by a downbeat signal from the International Energy Agency (IEA), which trimmed its oil demand forecast for 2003 in a report published on Tuesday.

The agency revised down its annual forecast for world oil demand growth by 90,000 bpd to 1.03 million because of the impact of the SARS virus on consumption in Asia.

It also said that oil demand in Asia's fastest growing economy, China, would shrink by 5.5 percent in the second quarter on an annual basis because of the SARS epidemic.

The Paris-based agency said it had slashed its demand forecast for China for the second quarter by 340,000 barrels per day to 4.95 million bpd as air and road transport fell sharply along with tourism, and economic activity slowed.

More bullishly for the markets, the Paris-based IEA, adviser on energy to 26 industrialized nations, also pointed to a decline in industry stocks, saying they had fallen more sharply than expected as consumers stocked up ahead of war in Iraq.

Commercial oil stocks among Organization for Economic Cooperation and Development Countries (OECD) shrank by 1.43 million barrels a day to 2.338 billion barrels in the first quarter, the agency said.

The decline left a 260-million-barrel, or 10 percent, deficit versus a year ago and compared to an average first-quarter draw of 280,000 bpd in the previous five years.

"The net result is that OECD industry stocks heading into the summer driving season are much lower than anticipated," the IEA said.

Analysts still expect the Organization of the Petroleum Exporting Countries to curb supplies further at a meeting in Qatar on June 11.

OPEC agreed in April to reduce output, fearing a potential price collapse from the eventual return of Iraqi crude to the international market and an uncertain outlook for oil demand as the global economy struggles with anemic growth.