Oil prices flatten as tanker fears abate

The tanker is almost new and has extra safety features

Global crude oil prices have eased back from the sharp rises earlier in the day, as fears that an explosion onboard an oil tanker off Yemen was a terrorist attack have abated.

There is a feeling in the market that this explosion highlights the danger to oil supplies from the region in case of war

Lawrence Eagles
oil research analyst, GNI

By the close of business in London, the price of Brent crude - a key benchmark - was up just eight US cents on the day at $28.20 a barrel. Morning trading had seen prices rise as high as $28.60.

The incident on the recently commissioned tanker Limburg occurred near the mouth of the Red Sea and bears similarities to an attack on a US navy destroyer two years ago.

But US and Yemeni officials have been downplaying the comparison, and oil dealers took their cue to take their profits for the day and push the price back down.

Jumpy

Still, the market remains very jittery about what might happen in the Middle East, with the threat of war on Iraq and consequent disruption of supplies too real for comfort.

"There is a feeling in the market that this explosion highlights the danger to oil supplies from the region in case of war," said Lawrence Eagles, oil research analyst at GNI.

High oil prices would be damaging for hopes of a US-led global economic recovery.

US oil prices were only up by a few cents, but a speech due this evening from President George W Bush - widely tipped to be an attempt to rally a nervous American populace behind an early attack on Iraq - could trigger further gains, analysts said.

Accident 'unlikely'

But whatever the governments are saying, the company which owns the Limburg still feels terrorism was the likely cause.

Captain Peter Raes, managing director of the tanker's owner France Ship, told BBC News Online it would be "near impossible" for an accidental explosion to have taken place.

"A junior officer saw a craft approaching the Limburg. He was of the opinion that we touched that craft and then there was an explosion," Captain Raes said.

However, in a more cautious statement, the French Foreign Ministry said it was too early to say what had caused the explosion.

In 2000, the USS Cole was struck in Yemen by a small vessel laden with explosives, disabling one of the most advanced ships in the US Navy and killing 17 sailors.