Oil: Price rebounds after sharp drop on bomb plot

NEW YORK - Oil prices rose back above US$74 today, recovering a little from a 3 per cent dive the previous day when an attempted trans-Atlantic aircraft bomb plot raised fears of a fall in oil demand.

But bullish sentiment was limited by hope that a deal could soon be reached to end the Middle East war, the return to normal production of a major Nigerian oil field and expectations that Alaska's Prudhoe Bay oil field will not be completely shut down as was feared earlier this week.

US light, sweet crude oil settled up 35 cents at US$74.35 a barrel, rebounding slightly from the US$2.35 slump on Thursday. London Brent crude rose 35 cents to US$75.63.

Crude and petrol prices plummeted yesterday on fears that travellers would shun airlines after Britain said it stopped the plot just days before its execution.

The initial market drop showed concern over a possible drop in air travel and downward pressure on the global economy.

"We think this perception is grossly unwarranted, as five years after 9/11 travellers have shown a remarkable ability to take terrorist threats in stride and have not cut back on travel plans," said Edward Meir of Man Financial.

Airlines said flights were returning to normal today after thousands of passengers were stranded by cancellations and delays.

Concern over a prolonged outage at Alaska's Prudhoe Bay oil field continued to support prices, although the US government said yesterday BP Plc could continue to pump oil from the western half of the development as it repairs corroded pipes on the eastern side. BP said it would decide today whether to continue operating after a final review of the latest corrosion detection reports on a key pipeline at the field.

A total of 245,000 barrels per day (bpd) of production is now shut in on the eastern flank, BP said.

BP began shutting the 400,000 bpd Prudhoe Bay oil field, which accounts for 8 per cent of US production, as a precautionary measure next week after government-ordered pipeline inspections revealed severe corrosion on the eastern side of the field.

The International Energy Agency said the world could cope for now with the loss of about 1 million bpd of oil from Alaska and Nigeria, but the pressure was on exporter group Opec to fill the gap.

"There's quite a lot of crude around, so there's not much of a worry," said Lawrence Eagles, head of the Oil Industry and Markets division at the IEA.

In Nigeria, Shell's vast Bonny Light oil field resumed pumping up to 430,000 bpd after a pipeline leak was fixed, a source familiar with the matter said.

Oil traders are also watching for any progress towards ending the one-month old Middle East war. The United States and Lebanon said today a deal on a United Nations resolution to halt fighting was in sight.

"We are now very, very close to agreement and our aspiration to have a vote at the end of the afternoon remains," Washington's UN envoy John Bolton told reporters.

- REUTERS