Mon Aug 2, 2004
By Tanya Pang

SINGAPORE (Reuters) - U.S. oil prices struck a new 21-year peak on Monday, climbing close to $44 a barrel after the United States raised its security alert to high for a possible al Qaeda attack on a top financial institution.

Dealers said the increased security threat was boosting the market, which is already worried by possible sabotage strikes on oil infrastructure in the Middle East at a time when producers are pumping close to full tilt to supply soaring oil demand.

U.S. light crude hit a peak at $43.92 a barrel, marking a gain of 12 cents over Friday's settlement and the highest level reached since oil futures were launched on the New York Mercantile Exchange in 1983.

At 0542 GMT, U.S. crude was down 10 cents at $43.70 a barrel.

"The market is pinned to the upside when you look at the trend. There's not much negative out there to bring prices down," said John Brady at ABN AMRO in New York.

"The threat alert is bringing more confusion and uncertainty into the market."

Washington said on Sunday that intelligence signaled a possible al Qaeda attack and declared a high level threat alert on the World Bank and the International Monetary Fund, as well as the New York Stock Exchange and other financial institutions such as Citigroup and Prudential Financial.

The head of oil giant BP Plc. forecast at the weekend that oil prices were unlikely to decline any time soon.

"What with the insecurity of supply, the price seems to be holding up quite high," BP chief executive John Browne told BBC Television on Sunday. "One day it will come down, but not in the very short term I'm afraid."

Tony Nunan, manager at Mitsubishi Corp.'s international petroleum business in Tokyo, said any strike may bring prices down, as happened after the September 11, 2001 plane attacks on the World Trade Center and the Pentagon.

U.S. crude prices briefly spiked a couple of dollars close to $30 a barrel following those attacks but came crashing down to the low $20s soon after along with financial markets.

"After 9/11 people were afraid and stopped traveling. They stopped consuming because of the uncertainty. If the target is in a consuming nation, you would expect an attack to affect the market to the downside," said Nunan.

YUKOS UNCERTAINTY

U.S. oil rallied on Friday to a peak at $43.85, driven by concerns that financial turmoil at Russia's YUKOS might cut exports from the world's second-biggest supplier.

YUKOS has said it could collapse by mid-August because of a freeze on its bank accounts and assets over a $3.4 billion tax bill. Russian bailiffs on Friday gave YUKOS a month to pay the debt.

London's Brent crude rose above $40 to a fresh 14-year high at $40.05 a barrel.

Oil dealers say any disruption to Russian exports would stretch already tight global stockpiles and leave the OPEC producers' group with little power to counter any supply squeeze.

"We believe the news from Russia will intensify concerns over the lack of spare capacity in the international oil system, as OPEC is pumping flat out to meet strong global demand growth," Gordon Kwan at Kingsway Financial Services Group Ltd. in Hong Kong said in a recent research note.

The Organization of the Petroleum Exporting Countries, which controls more than half of world crude exports, raised its official production ceiling by 500,000 barrels per day (bpd) to 26 million bpd on Sunday.

OPEC is pumping well over official output limits at the highest levels for a quarter of a century, and analysts say only Saudi Arabia has any significant spare capacity to boost production during emergencies.

The group's self-imposed limits exclude Iraq, where exports tallied about 1.5 million bpd in July and are expected to rise to between 1.7 million bpd and 1.8 million bpd this month if there are no more sabotage attacks on key pipelines in the south of the country.

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