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Supply concerns continueto push up oil prices


Supply concerns continueto push up oil prices


Oil seems set to break through the 70 dollars a barrel level very soon. One concern driving up prices is that supplies from Iran, the world’s fourth-largest producer, will be disrupted by the dispute over the country’s nuclear research. In addition there is strong demand in the US and China and supply threats in Nigeria and Iraq. The cost of crude has risen steadily, with only slight pauses, since the start of 2002. Then it was just below 20 dollars a barrel. Now it is pushing 70 dollars, a gain of 250% and it is up 13% just since January.

Much of the recent rise is due to speculators, hedge funds and other investors, betting that rising demand, supply disruptions and political tensions will push prices to new records. The Organisation of Petroleum Exporting Countries, which pumps more than a third of the world’s oil, is less and less able to influence prices. Its president said last week that OPEC is unlikely to cut production in the face of high prices and geopolitical threats to supplies. But that had only a temporary lowering effect on the cost. There is no sign of demand decreasing. As analysts at Deutsche Bank said: “With the US and global economies still showing strong signs of resilience, expectations for oil demand growth in 2006 and 2007 remain robust.”

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