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'Fear Premium' Pushing Oil, Gas Prices Even Higher

WASHINGTON -- Motorists may be paying as much as 36 cents a gallon more at the pump because of the petroleum industry's anxiety that terrorists might disrupt oil supplies, a fear that increased with two murderous rampages by gunmen linked to al-Qaida at oil compounds in the heart of Saudi Arabia, reported the Associated Press.

Estimates vary, but some energy economists said as much as $10 to $15 is being added to the cost of every barrel of crude oil because of fear that terror in Saudi Arabia, violence in Iraq or unrest elsewhere could disrupt future oil supplies.

The fear factor went up a notch over the long holiday weekend with the attack in Khobar, Saudi Arabia, that killed 22 people, mostly foreign oil workers. It was the second attack in a month against oil workers in the Islamic kingdom.

Oil prices surged more than $2 a barrel on Tuesday, the first trading day since the Khobar attack. The price of gasoline jumped 6 cents a gallon on the New York Mercantile Exchange.

"There obviously is a fear premium," said Seth Kleinman, an oil market analyst at PFC Energy, a Washington-based consulting firm. While there always has been such a premium in oil prices, with the targeting of Saudi Arabia's oil industry, Kleinman said, "It's gotten a lot further, and it's gotten a lot bigger."

One reason is that Saudi Arabia, which pumps 10 percent of the world's oil, is the only producer that has significant spare capacity to produce more as needed to stem demand and prices, economists said. While the attacks did not target Saudi pipelines, terminals or oil fields directly, the psychological impact has rattled the markets.

"Increasing terrorist activities around the world and uncertainty and instability have driven oil prices over the last six months. It's not a lack of supply," argued Fadel Gheit, an energy strategist for Oppenheimer and Co. in New York.

Many oil industry analysts estimate that without the uncertainty posed by terrorists and the continued violence in Iraq, oil prices probably would be in the $30 range. They say there's still plenty of oil available.
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