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Friday, 14 September, 2001, 16:31 GMT 17:31 UK
Oil prices soar on supply fears
oil well
Fears over the security of supply pushes the oil price higher
Crude oil prices rose more than 5% on Friday, over fears that oil supplies will be disrupted.

Growing fears of retaliation after Tuesday's devastating terrorist attacks on the US caused the sudden rise.

Oil prices had stabilised after Tuesday's 13% jump, which most traders saw as a panic reaction.

The increasing likelihood of retaliation threatens to undermine supply relationships with oil-rich countries in the Middle East, even though Afghanistan appears to be the centre of US military attention.

The oil price typically reflects any sign of rising political tension in the Middle East, because of fears over security of supply.

The Middle East holds two-thirds of the world's crude oil reserves.

Petrol price hike to follow

The benchmark crude oil for November rose $1.45 to $29.82 by 1400 GMT (1500 BST) on the International Petroleum Exchange in London.

The contract fell away slightly at the end of the day to close at $29.54.

A rise in the crude oil price will feed through to many different refined products including petrol, jet fuel and diesel.

The fears of a retaliation emerged after reports that the US had tendered for vessels to transport marine and jet fuel.

And later in the afternoon, the US senate sanctioned military action against those responsible for the terrorist attacks.

There are also reports that the Taleban movement has vowed revenge in the case of a US attack on Afghanistan.

These worries also sent stock markets and the dollar falling.

The oil prices had previously spiked on Thursday over rumours that British and US warplanes had struck southern Iraq.

The price fell quickly away when the rumours were denied, but demonstrated nevertheless the sensitivity of the oil price to all political events surrounding the Middle East.

Dwindling energy needs

Demand for oil should theoretically fall because of the terrorist attacks.

Demand for jet fuel will be lower as the airlines suffer the fall out from a lower number of passengers.

And there will also be less need for crude oil and other heating oil products to fuel industry if the US heads into a recession.

But fears over any supply shortage from the Middle East far outweigh faltering demand.

Opec's promise

The cartel of leading oil producing countries, Opec, has promised to meet any shortfall in supply by raising its own production levels.

But although this promise soothed markets earlier in the week, it was not enough to stop the sudden rise in prices on Friday.

The New York Mercantile Exchange (Nymex) trading floor has been closed since Tuesday, although there is a short trading session planned for Friday through the electronic system.

Further significant movements in oil prices on expected to depend on indications of what form any retaliation from the US will take.

See also:

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Oil markets explained
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