Oil prices fall

Oil prices were on the slide today as traders expressed relief at the smooth handover of power in Iraq.

The sharpest fall took place in London where the price of a barrel of Brent crude was nearly 4% lower at $33.7 (€27.7).

Experts said the restoration of Iraqi oil exports after a two-week stoppage due to sabotage by militants was also helping to improve sentiment.

Further falls in oil prices are expected although demand over the winter months could push them up again towards the end of the year.

Instability in the Middle East has been a key driver in the oil price reaching a record high of more than $42m (€34.5m) a barrel in New York last month. It stood at $35.77 (€29.4m) today.

Rising tensions have taken place against a backdrop of surging demand in nations such as China and refining problems in the economic powerhouse of the United States.

This led to supplies becoming overstretched despite efforts by oil cartel Opec to take the steam out of the market by hiking production by more than two million barrels a day.

Investec oil expert Bruce Evers said the Iraqi handover had helped to improve sentiment but warned: “We’re not out of the woods yet. I think there is an element of traders seizing on any scraps of good news. I don’t necessarily think the problems are going to go away.”

This cautious outlook was shared by Paul Horsnell, head of energy research at Barclays Capital, who said any future loss of capacity in Iraq would put the oil price under renewed pressure.

“The big risk is that we will run out of capacity full stop. We just don’t have any cover for serious disruptions,” he said.

Investment in the oil industry has been inadequate over the past decade which has prevented any short-term solutions to the problem, he said.

Inventories remain close to record lows in the US which is likely to lead to supply tightening at the end of the year and could bring a sharp rebound in oil prices.

“If you get a very cold winter then it’s really going to put pressure on the system,” Mr Evers said.