/ 1 January 2002

Oil prices climb after renewed Mideast tensions

Oil prices resumed their upward climb on Monday on reports of increased tensions in the Middle East that saw Israeli tanks roll into the West Bank city of Ramallah.

Oil prices resumed their upward climb on Monday on reports of increased tensions in the Middle East.

The start of the week saw Israeli tanks roll into the West Bank city of Ramallah and surround the headquarters of Palestinian President Yasser Arafat in the latest phase of Israel’s expanding crackdown.

The move sparked a seven-cent gain in benchmark NYMEX US light sweet crude futures, pushing prices to $25,89 a barrel in Asia after a pre-weekend fall of 13 cents.

Prices had been rising steadily since the middle of last week before they dipped on Friday.

Arafat has been under intense Israeli and international pressure to rein in militants after two suicide bombings in Jerusalem and a gun attack on a Jewish settlement last week.

In an apparent fresh response to that pressure, the Palestinian Authority placed the founder and spiritual mentor of the Islamic militant group Hamas, Sheikh Ahmed Yassin, under house arrest in Gaza City early on Monday.

Spotlight on Opec

The hike in tensions comes two days before the Organisation of Petroleum Exporting Countries (Opec) meets in Vienna to discuss production limits.

The cartel is widely expected to leave output quotas unchanged for the third quarter, although it could decide in September to lift supplies for the fourth quarter.

Opec in January officially slashed production by 1,5 million barrels per day (bpd) in order to boost prices which sank to about $17 a barrel shortly after the September 11 attacks on the United States.

Cuts from five non-OPEC producers including Russia, Mexico and Norway removed an additional 500 000 bpd from the 76-million-bpd global market.

Of the five countries, only Mexico and tiny Oman are expected to continue their export restraints. The world’s second and third largest exporters, Russia and Norway, plan to return exports to full capacity.

Another potential thorn in Opec’s side was talk from sources at state oil company PDVSA that Venezuela was planning to lift production by 400 000 bpd above its Opec quota for the rest of the year to solve a crisis in government finances.

President Hugo Chavez has denied the increase and said Venezuela had no plans to stray from its Opec commitments.

Opec’s largest quota buster during the late 1990s, Venezuela has been one of the cartel’s strongest price hawks since Chavez took office in 1999.

But relations between the government and PDVSA have been tense, contributing to a brief coup against Chavez in April. – Reuters