Oil's crude Iranian awakening
By Karen Maley
Oil prices jumped overnight, with the price of Brent crude climbing above $120 a barrel for the first time since mid-2008 as investors gave up hopes for an early end to the Libyan conflict, and fretted about signs of growing unrest through the Middle East and North Africa.
The worries come as global economic recovery is driving up the demand for oil, and at a time when refiners are ramping up their operations, ahead of the US summer holiday period, when demand for petrol surges.
In New York, the contract price for light sweet crude for delivery in May finished at $108.47 a barrel, its highest close since September, 2008. Already US petrol prices average $3.66 a gallon, about 5 per cent higher than a month ago, and about 30 per cent higher than the same time last year.
But some see the oil price moving even higher. According to a report in Le Monde newspaper, the Iranian president, Mahmoud Ahmadinejad, predicted that the oil price would reach $150 a barrel. “Current oil prices are not real”, he told a press conference.
Nervous traders are closely monitoring the conflict in Libya where forces loyal to Muammar Gaddafi control most of the western half of the country, while rebels have seized most of the east. On Monday, rebel forces regained control of much of the coastal city of Brega on Monday, after losing the town to Gaddafi forces on the weekend.
Watching these fluctuations, markets have formed the view that the Libyan conflict will be prolonged, and there’s little chance that Libya will resume its exports of 1.6 million barrels a day, or roughly 2 per cent of the world’s oil supplies in the near future. They also suspect that efforts by Saudi Arabia to replace the shortfall in Libyan production have fallen short.
And although there were reports that Libyan rebels are preparing to make their first oil shipment from the eastern Libyan port of Tubruq later today, traders worried that Gaddafi forces would be certain to try to disrupt any substantial oil exports.
Markets were further rattled by a strike in Gabon, a small African oil-producing nation, where oil workers are demanding a reduction in the number of foreign workers employed in the oil industry. The strike is causing disrupting the country’s oil production, which runs at about 240,000 barrels a day.
And they were worried that the conflict in Yemen could be heating up, after security forces opened fire on anti-government protesters overnight, killing nine people. Although Yemen producers little oil, markets are worried that a growing conflict could disrupt nearby oil-shipping lanes.
Some traders are beginning to express concern that the growing unrest sweeping through the Middle East could reach Saudi Arabia.
They point to King Abdullah’s recent announcement of $129 billion in handouts and increased social spending, as evidence that Riyadh is also extremely conscious of the risk.
Investors, who had earlier assumed that February’s surge in oil prices would prove to be temporary, are now re-examining the implications of a longer-term rise in the oil price.
Surging oil prices have been the precursor to each of the last five major global economic slowdowns. Higher petrol and heating prices force consumers to cut back their spending on discretionary items, and push up costs for businesses.
As a result, there are now growing fears that recovery in global economic activity now underway could be cut short if continuing turmoil in the Middle East leads to further oil price rises.
NUTSHELL:
It goes without saying that the current oil price situation has got the global economy on edge. It's not news; but the typical hysteria that comes with any hint of an oil price increase. It's one of the most unpredictable phenomena known to mankind. Yes, it's the oil price.
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