Oil prices surged above $27 a barrel here as market players fretted about the impact of a US-British raid on the outskirts of Baghdad and possible further output cutbacks from OPEC.
A barrel of Brent North Sea reference crude for April delivery rose to $27.40, up 51 cents from Friday's closing price.
In New York, the light sweet crude March contract was not traded Monday due to a US holiday. It ended Friday's session up 33 cents at $29.13.
"Basically we're up on the back of the Iraqi bombings," said one London trader at the International Petroleum Exchange (IPE). "At the moment there is not really that much to worry about, but obviously if it escalates out there we'll have to relook at that."
Market players were responding to the attack by US and British aircraft on military sites around Baghdad on Friday in the first raid on Iraq's capital for two years.
The prime fears remain that Iraqi exports could turn more unpredictable than ever as a result of the raid, and that other Arab oil exporters could be drawn into the stand-off.
Iraq's ruling Baath party on Monday threatened military retaliation against two major oil exporters, Saudi Arabia and Kuwait, if they keep providing bases for US and British air strikes.
But analysts discounted major impact on the crude market fundamentals on Monday, saying the Anglo-US action would not affect Iraqi production, nor trigger a regional oil embargo.
"For oil what does it mean? We would argue very little," wrote Lawrence Eagles, commodities expert with the GNI brokerage.
"But while we would argue that the actual impact on oil supplies will be minimal, the news is certainly going to have unsettled the markets," he added.
A second factor affecting the market on Monday was fresh concern that the Organization of Petroleum Exporting Countries (OPEC) could decide to follow up a recent swinging five-percent output cut with another squeeze in March.
Secretary General Ali Rodriguez of Venezuela said Monday that a new cut of up to one million barrels a day could not be ruled out when the 11-nation cartel gathers in Vienna on March 16.
The Venezuelan official said "in the months of May, June and July, demand is expected to decrease as much as two million barrels," so OPEC may well opt to cut back production.
Demand is expected to grow by less than previously forecast this year because of a global economic slowdown.
This has nagged at prices, prompting concern in OPEC circles. OPEC's own basket price of seven world cruds, which it uses to set production policy, stood at $24.90 a barrel. OPEC has stated that a range of $22-28 is acceptable.
The London-based Center for Global Energy Studies (CGES) said on Monday there was a 50/50 chance of an OPEC output cut in March.
"Although the $22-28 target for the OPEC basket remains ... many within OPEC favor a price towards the upper end of this range," the CGES said in its monthly oil report.
"There are worrying indications that OPEC hawks might see a drop in the price below $25 a barrel as a signal for further cuts."
"If OPEC acts to keep prices high, then demand growth will falter and OPEC will enter a vicious circle of successive output cuts to defend an unsustainable price," it added. — (AFP)
© Agence France Presse 2001.
© 2001 Mena Report (www.menareport.com)
