Oil Prices Rise Following Saudi Siege

Oil prices today rose by almost 2% after a bloody siege in the Saudi Arabian oil city of Khobar, carried out on Saturday by suspected al-Qaida militants, left 22 people dead.

In morning trading, US light crude was up 72 cents, standing at $40.6 a barrel as business resumed after a three-day weekend.

London Brent crude rose by 71 cents to $37.3 a barrel. Saturday's siege, in which a British businessman was among the victims, inflated prices just as they were coming down from last week's highs of almost $42 a barrel.

Traders fear the Khobar attack could mark the start of a concerted effort to disrupt Saudi supplies at a time when oil prices are already high enough to derail the world economic recovery.

A statement purporting to come from al-Qaida, claiming responsibility for the attack, said it had hit "American companies ... that are specialised in oil and steal the wealth of Muslims".

French oil company Total today said it had moved its employees in Saudi Arabia to an undisclosed safe location after Saturday's attack. "We deplore the violence, and we have moved our employees to a secret, secure location. But we are not evacuating the country," a Total spokesman said.

While prices are still short of their recent 21-year peak of $41.8 a barrel, the siege highlighted the vulnerability of already stretched global crude supplies, with strong demand from the US and China also putting pressure on prices.

Ministers from the Opec oil cartel are due to meet in Beirut on Thursday, where they are expected to agree a rise in crude supply quotas of up to 11%, or 2.5 million barrels a day.

Opec is already pumping more than 2 million barrels a day above the existing formal ceiling of 23.5 million.

Any fresh supply would largely come from Saudi, the only producer which has significant spare capacity. Riyadh has already said it would to lift output by around 10%, to 9 million barrels daily, irrespective of cartel quotas.

The Indonesian oil minister, Purnomo Yusgiantoro - who is also Opec's president - also said he wanted to see a significant rise in ouput.

"Indonesia's position at the next Opec meeting is that Opec should increase the production ceiling to stabilise prices ...The important thing is that the increase should be a significant volume that can reduce prices," Mr Purnomo told Reuters.

Saudi officials today insisted they had reasserted full control after the Khobar attack, the second such incident in a month. However, Britain predicted more attacks in the kingdom, which holds around a quarter of global petroleum reserves.

"[Attacks] are clearly possible. I would go further than that and say they are probable," Sherard Cowper-Coles, Britain's ambassador to Saudi Arabia, said.

At the beginning of May, militants killed five foreign workers at a Saudi chemical plant in the Red Sea town of Yanbu.

Khobar has no production, export or refining facilities, but western oil firms have offices and housing in the city, which is 240 miles north-east of Riyadh.

The kingdom's heavily-protected energy infrastructure has not yet been struck by sabotage, but dealers fear militants could begin targeting production and export facilities.

Traders have already priced in a risk premium attached to supply security in the Middle East, and analysts say that between $5 and $8 a barrel reflects anxiety about sabotage of the oil infrastructure in Saudi Arabia and Iraq.