Oil prices were nudging record levels on global markets this week after Iraqi insurgents threatened to blow up the country’s key southern oilfields if the Americans launched a full-scale onslaught on the holy city of Najaf.
Dealers shrugged off an earlier move by Saudi Arabia to calm global energy markets after Wednesday’s frenetic trading that saw fresh concerns about terrorism, the strength of global demand and the future of the Russian oil giant, Yukos.
”If the United States forces attack Najaf we will blow up the oil pipelines,” Sheikh Asaad al-Basri, the Basra leader of the Mahdi army militia loyal to Moqtada al-Sadr, told Reuters in the southern city.
Fearful that a global energy crisis could eventually lead to a crash in oil prices, the Saudi Oil Minister Ali al-Naimi stressed that the Organisation of Petroleum Exporting Countries (Opec) would act to prevent damage to the global economy.
”The kingdom of Saudi Arabia, in collaboration with the other Opec countries, endeavours to ensure the stability of the international oil market and prevent prices from escalating in a way that may negatively affect the world economy or oil demand,” he said.
Al-Naimi said Saudi Arabia was pumping 9,3-million barrels a day of crude and was ready to tap surplus capacity of 1,3-million barrels a day should it be required. Saudi would meet demand for more than 9,3-million barrels a day in September.
Oil prices fell by a dollar in the aftermath of the Saudi announcement but quickly regained most of the lost ground as traders expressed scepticism about the ability of the Saudis to make good their promise.
By lunchtime on Wednesday in New York, the price of US light crude on the futures market was just 10c lower on the day at $44,42 and within striking distance of the record $45,04 reached on Tuesday. Brent, the London market’s benchmark crude, was up 5c a barrel at $41,30.
Traders remained convinced that the price would test $50 over the coming weeks. ”Saudi Arabia is trying to jawbone prices down but the market has got too many things to worry about, like the Mahdi army in Iraq,” said US energy consultant Gary Ross of Pira Energy.
The Saudis stressed that their production facilities were not vulnerable to sabotage.
Foreign Affairs adviser Adel al-Jubeir said in Washington that the possibility of a terrorist attack on his nation’s oil infrastructure was ”very, very far-fetched”.
Wednesday’s unrest in the Middle East came as the International Energy Agency said Opec’s sustainable spare production capacity shrank to 600 000 barrels a day in July as the cartel raised output to try to contain prices.
”The thin margin of spare capacity held by Opec producers has contributed to recent price strength,” said the IEA, which is an adviser on energy to 26 industrialised nations. — Â