TERRORIST attacks in Saudi Arabia yesterday prompted fresh oil price jitters before this week's crucial meeting of OPEC oil producers aimed at increasing production.
The fallout from the increasing Saudi tensions could spill on to the local share market today, with fuel-hungry stocks such as Qantas and Virgin Blue in the spotlight.
While the attack did not threaten production facilities, the incident - and fears of more in the offing - has dampened expectations that OPEC's move will ease oil prices, which are hovering near record highs.
Some experts also believe the attack at the Saudi oil centre of Al-Khobar which left at least 16 people dead could push oil back over $US40 a barrel.
The price for benchmark US crude closed on Friday at a near record $US39.88 a barrel, up US41c.
With a long weekend in the US and much of Europe, the full effect of the Saudi tensions will not be known until US oil trading resumes tomorrow.
Royal Automobile Club of Victoria petrol expert David Cumming said the attack would make the market "even more nervous" and would offset the benefit of OPEC's expected decision to boost production by at least 2 million barrels a day.
"It is certainly not helpful," he said.
"This could push high oil prices out for many more months."
OPEC members will meet in Beirut on Thursday to discuss the option of remove production limits or to raise these limits by 2.3 million barrels a day, which would cover existing overproduction and add more oil to the market.
However, some experts believe holding the current limits is also an option, because some OPEC members fear an easing of political fears could send oil prices tumbling after months of hefty returns.
OPEC's current output ceiling is 23.5 million barrels a day, but its actual production is estimated at 25.5-26 million barrels a day, with most members already pumping at their maximum.
Caltex Australia chairman Dick Warburton yesterday described the events in Saudi Arabia as "clearly not advantageous".
But he doubted there would be a price rise on that news alone, as investors had already factored further bad news into the oil price.
"The market in a way has been catching up with itself," he said.
"Whether it will cause a spike I cannot say but ... it could get worse."
But the growing tensions within the world's biggest oil-producing nation leave the local share market vulnerable to correction, especially among oil-reliant transport stocks such as Qantas, Virgin and Toll Holdings.
Tolhurst Noall's Marcus Padley said the share market was likely to react in the short term, but said sell-offs based on terrorist fears tended to result in buying opportunities.
National Australia Bank chief economist Alan Oster said up to $US15 a barrel of the oil price was due to hedge fund activity. "It has the potential to cause some problems, but a lot of the increase in oil prices is speculative positioning."
He said oil prices were unlikely to influence the Reserve Bank's thinking on interest rates before its monthly meeting tomorrow.
With growing signs of a housing downturn, the central bank is expected to leave official rates unchanged.
Local economic figures due for release this week include the current account deficit, company profits, private credit growth, housing prices and retail trade figures.