Geopolitical crises spark oil price surge

OIL surged to new record highs above $76 a barrel yesterday on renewed worries over supply from major exporter Nigeria.

Prices were fuelled further over growing concerns that the renewed conflict between Israel and Lebanon would add international tensions in the region.

Prices also rose as the Iran nuclear row appeared to be heading to the UN Security Council, while practical concerns such as declining oil stocks in the US, which fell more than expected hit prices over night.

“Geopolitical tensions have stepped up — we are moving on to a new phase in Iran and Israel,” said Mike Wittner of investment bank Calyon.

“In the end, geopolitical risk is about a current supply disruption getting worse or a new one happening.”

Qatari oil minister Abdullah al-Attiyah said there was no shortage of crude oil in world markets and he blamed geopolitical tensions for the surge to record-high prices.

“The main thing is that we see that there is no shortage in the market at all,” he said.

“Speculators are using the geopolitical situation to their benefit and we are seeing how the oil prices are reacting.”

Paul Harris, head of energy, Bank of Ireland Global Markets agreed with the above analysis.

The latest US data reveal a further reduction in crude oil stocks in the US by a multiple of five times the Reuters consensus, he said.

In all, imports fell by nearly one million barrels per day while petrol stocks fell 400,000 barrels, four times more than expected.

What has the market on edge is that the fall in stocks underpins the view, expressed recently the International Energy Association, that the decline in stocks serves to undermine the growing demand for energy across the globe, he said.

“With little prospect of any good news on Nigeria, Iran and global demand any time soon, the risks remain on the upside and the prospect of a move to, and through $80 per barrel must be very real, very soon,” said Mr Harris.

“The fundamentals support the move and the hurricane season in the Gulf may prove the catalyst for further aggressive spikes,” he warned.

Oil in New York is up 23% this year because of supply cuts in Nigeria, the dispute over Iran’s nuclear work and a flood of investment fund money into commodities.

Oil has rallied from below $20 at the start of 2002, driven by rising global demand led by the US and China that has stretched oil producers and refiners.

OPEC, the producer group that pumps more than a third of the world’s oil, has been powerless to stem the surge in prices, blaming a lack of investment in new refineries.

Growing demand and a strain on supply suggest that strong oil prices are here to stay unless a recession leads to a collapse in demand, investors said.

High oil prices are now a permanent feature because of the rapid industrialisation of Asia, particularly China, analysts said.