Fear may drive oil to $US40 By CHRIS MILNE 14oct00

WORLD oil prices soared above $US36 a barrel yesterday on fears that the worsening crisis between Israelis and Palestinians and the terrorist attack on a US destroyer in the Yemeni port of Aden could hit supplies.

A strike by Venezuelan oil workers and reduced US oil stocks also helped to push prices up, with crude for November delivery rising $US2.81 to $US36.10 a barrel at the close of New York trade. The concerns sent the price of oil up to 10-year highs of $US37 a barrel during trading  with warnings it could hit $US40 in the short term.

In London, the Brent North Sea crude surged more than 11 per cent to $US35.30, before easing back. It was trading at $US34.85 last night.

"What we saw here is fear, pure and simple," Phil Flynn, vice-president and senior energy analyst at Alaron Trading in Chicago said.

Traders feared that Arab suppliers taking sides with the Palestinians against the Israelis could use oil supplies as a lever for political gain, Robert Hormats of Goldman Sachs International said.

"It probably won't happen," he said. "But the risk is there."

Deutsche Bank analyst Nick Bennenbroek added: "If OPEC supplies get disrupted then we are looking at the risk of another spike in prices. These heightened tensions come on top of tight fundamentals, including inventory levels lower than usual, high refinery rates and colder weather patterns."

Further tension was injected into the market when Iraq threatened to suspend oil exports unless the United Nations converted to euros the billions of Iraqi-owned dollars held in a French bank account under the UN's food-for-oil program.

Locally, oil stocks reacted positively, with the ASX energy index rising 14 points to 1618.8.

Among major stocks, Woodside added 7c to $13.90, Santos 9c to $6.53 and Caltex 7c to $2.60.

Despite the price surge, BT Funds Management's chief economist Chris Caton said oil should drop back to $US30 a barrel by the end of January and to about $US26 by next October.

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-- Martin Thompson (mthom1927@aol.com), October 13, 2000