(On Saturday, 29th May 2004 I made the following comment regarding oil: "My guess would be a $1.50 to $2.10 increase per barrel at the opening at the NYMEX, with a closing price of $1.25 UP .....if nothing else happens between now and then."

Time will tell during Tuesday's NYMEX trading session. I had completely forgotten Monday the market would be closed when I made that comment Sat night.)
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BBC-News / Last Updated: Tuesday, 1 June, 2004, 04:43 GMT 05:43 UK

Fear of further Middle East unrest pushed oil prices higher on Tuesday, despite signs that exporters will agree to increase output this week.
Islamic militants killed 22 in Saudi Arabia, with oil prices already close to their highest level in years due to soaring demand and the Iraq conflict.

Prices rose 2% in Asian trading on Tuesday to $40.50 for US light crude.

Further price rises are likely when US and UK oil markets reopen later in the day, after being closed on Monday.

"The immediate impact (of the weekend attacks) is more panic and an additional premium in prices, which will surge," Abdulwahab Abu-Dahesh, senior economist at Riyad Bank, told the Agence France Presse news agency.

"The impact will be psychological rather than economic."

Production promise

Two weeks ago, the oil price peaked at $41.85, the highest level on record, although economists point out that prices were far higher in real terms during the oil shock of the late 1970s.

The price had closed at $39.93 in New York on Friday.

Leading oil producing nations have attempted to reassure the markets, signalling that exporters' cartel Opec will back a production increase when it meets in Beirut this Thursday.

Saudi Arabia has proposed that Opec members should raise output by up to 2.5 million barrels a day, and has unilaterally committed itself to pumping another 800,000 barrels a day.

Quatar's energy minister, Abdullah bin Hamad al-Attiya, said Opec would "supply the market, as much as the market can absorb."
Opec is thought to be already breaching its official daily production ceiling of 23.5 million barrels by about 2 million barrels a day.

But an Opec spokesman said three of the organisation's members - Saudi Arabia, Kuwait, and the United Arab Emirates - could between them add three million barrels a day "at short notice."

Economy worries

However, some analysts believe the time lag between agreeing a production boost and the extra oil reaching the marketplace would keep prices high for the time being, even if Opec did achieve a genuine increase in output.

Leading non-Middle Eastern producers Russia, Nigeria and Mexico have also promised to boost output in recent weeks, but substantial production increases are thought to be unlikely in the short term because of technical constraints.

Oil exporting nations benefit in the short term from high oil prices, but prefer to avoid major price spikes as these dent economic growth in industrialised nations, leading to a drop in demand.

Big price increases also encourage industrialised nations to invest in alternative sources of energy, which, if successful, could permanently cut oil consumption.

Opec has an official price target of between $22 and $28 a barrel, although some members have recently called for this to be increased to offset a recent decline in the value of the dollar.

Opec president Purnomo Yusgiantoro acknowledged that the Islamic militants' new strategy of targeting oil facilities in Saudi Arabia - the only producer with sufficient spare capacity to influence prices - was a worrying development.

"We are concerned because we hope they are going to be leading the increase in production," the Opec president said.

Oil prices could overshadow Tuesday's monthly summit of European Union finance ministers.

According to the European Commission, a 25% jump in oil prices this year would reduce eurozone growth to less than 1.6% from an original forecast of 1.7%.

It would also boost average inflation to 2% from an initial forecast of 1.8%.