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Energy markets jittery on Bin Laden death

Crude prices volatile of fears of supply disruption; LNG takers face no serious threat

Fear of supply disruption from reprisal attacks, rather than physical infrastructure damage, is concerning energy markets after the death of Al-Qaeda leader Osama Bin Laden on Sunday. The US and UK government’s have warned of potential revenge terrorist attacks.

US commandos killed Bin Laden during a raid at his hideout in Abbottabad, north Pakistan, with his body buried at sea soon after in accordance with Islamic rules, President Barack Obama said. US officials also used DNA samples to identify the terrorist figurehead.

In London on Monday 2 May, Brent oil prices fell by around 3%, to $121 a barrel, as a result of the news of Bin Laden’s death, with market participants predicting a lower overall risk from terror attacks. But crude regained losses to close over $125/b, partly because of concerns associated with extremist reprisals rather than physical supply disruptions.

Fear factor

“It’s the fear factor – that attacks might happen and cause disruption – that is moving oil prices up and down,” said Takin Manouchehr, senior analyst at the Centre for Global Energy Studies. But, he added, the Middle East region will remain politically stable, with regime changes and uprisings unlikely to result from Bin Laden’s assassination.

Analysts also believe physical attacks on important oil installations are unlikely, with the Al-Qaeda terrorist network much weaker than it once was and with security high in the world’s main oil-producing countries.

“It takes a lot of effort to blow up pipelines and the Saudi Arabians have successfully kept a lid on extremists,” said Samuel Ciszuk, senior Middle East energy analyst at IHS Global Insight. “There is some apprehension in the market about retaliation in the next few weeks, but it’s unlikely to be on a catastrophic level.” Saudi Arabia is the world’s second-largest oil producer.

But oil traders are still cautious, with Bin Laden’s death another factor in an already jumpy market. “Threats of retaliation are causing uncertainty in an already uncertain world and oil prices are fluctuating as a result,” said Thorbjørn Bak Jensen, oil market analyst at Global Risk Management.

Oil prices were already sliding before the Bin Laden news, following a Nato airstrike in Libya at the weekend that killed the youngest of Muammar Qadhafi’s sons and three of his grandchildren. This latest offensive suggests a resolution might be reached to the country’s civil war, which has shut in around 1.6m barrels a day of Libyan oil production.

LNG attack

In the US, Massachusetts state law-enforcement officers have increased security at Boston’s 3.8 million tonnes a year (t/y) Everett liquefied natural gas (LNG) import terminal, although an attack on an LNG tanker is very unlikely to cause a catastrophic explosion, according to risk-management firm DNV.

“It would have to be a sophisticated weapon to even pierce the hull [of an LNG tanker],” said Lars-Petter Blikom, DNV LNG segment director. “And if one of the vessel’s LNG tanks within the hull was pierced, then it would cause a leak with the gas vapour burning on top of the liquefied gas.” The tanker would not explode, he added: the LNG would have to be turned into gas, then mixed the right amount of oxygen and then the mixture ignited in a confined space for it to blow up.

A ruptured LNG tanker would have less environmental impact than an equivalent leaking oil tanker, explained Blikom, because most of the LNG would return to its gaseous state then be dispersed into the atmosphere. Any burning gas would have nearly no polluting black fumes, compared with burning crude oil.

A safer world?

Although Obama said the world was safer following the death of Bin Laden, both US and UK governments have issued warnings that Al-Qaeda still had the capability to launch revenge attacks on people and infrastructure. Bin Laden was regarded as the mastermind behind the 11 September 2001 attacks on New York and Washington, where nearly 3,000 people were killed. His death brings to an end a 10-year manhunt for the terrorist leader.

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