Oil Prices Touch $42 a Barrel

Updated from 8:01 a.m. EDT

Oil futures briefly hit $42 a barrel in Tuesday trading after 22 people were killed over the weekend in Khobar, Saudi Arabia, in an attack by suspected al Qaeda militants, who stormed two petroleum industry compounds and took as many as 50 people hostage in a nearby residential complex.

In recent trading on the New York Mercantile Exchange, the benchmark U.S. crude rose $2, or 4.8%, to $41.88 a barrel, approaching its recent record high. Gasoline futures leaped nearly 6.7 cents, or 5%, to $1.354 a gallon.

The latest attacks on oil industry workers and facilities in the kingdom, the world's largest oil exporter, raised new concerns about supply in a skittish market, with the Saudis scheduled to boost production today from 8.3 million barrels to 9.1 million barrels a day. The Saudi's unilateral move is an attempt to prevent high prices from hurting global economic growth and has yet to be matched by fellow members of the Organization of Petroleum Exporting Countries. OPEC meets later this week to decide whether it will raise its official production ceiling or take any other measures to temper the recent price spike.

Saudi Arabian security forces stormed the complex early Sunday morning, freeing the hostages, most of which were unharmed. But Saudi officials said the terrorists killed nine hostages and the Interior Ministry said one of the four attackers was captured; the others escaped and a manhunt was underway Sunday night in the port city, which is about 250 miles northeast of the capital, Riyadh.

Abdulaziz al-Muqrin, the top al Qaeda leader in the kingdom, reportedly claimed responsibility for the attack, which came just days after al-Muqrin threatened urban guerrilla warfare designed to topple the Saudi royal family.

The U.S. State Department said one American was among the 22 people killed during the spree and Western diplomatic sources said a British citizen also died. The Saudi Interior ministry confirmed those reports and said the death toll also included citizens of Saudi Arabia, Italy, India, the Philippines, Sri Lanka, South Africa and Egypt.

On Saturday, the terrorists attacked both the Arab Petroleum Investment Corporation's compound and the Al-Khobar Petroleum Center. Employees of Royal Dutch/Shell ( RD), Honeywell ( HON) and General Electric ( GE) lived in one of the compounds. Oil industry companies with offices in the compounds include a joint venture among Shell, Total SA ( TOT) and Saudi Aramco, Russia's Lukoil and China Petroleum & Chemical, or Sinopec. At least 11 people were reportedly killed in the initial attack.

Following the attack on the offices, the militants took hostages at the nearby Oasis Residential Resorts complex. After little activity overnight, three helicopters carrying Saudi security forces arrived shortly after sunrise Sunday morning in the kingdom.

The weekend attack is the second on oil assets in the Saudi Kingdom this month. On May 1, militants killed five foreigners in an attack on a petrochemical site in the Red Sea town of Yanbu. The earlier attack was followed by a sharp rise in crude prices.

Security concerns in the oil-rich Persian Gulf region have added to market worries about supply ahead of the peak summer driving season in the U.S. and Europe. Prices have repeatedly hit record highs on the Nymex and have twice closed within $42 a barrel.

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