LONDON, 14 July 2006 — Oil prices in London and New York surged yesterday for a third consecutive day to hit a new high of $76 per barrel as fears grew of disrupted future oil supplies due to the escalating violence in the Middle East and renewed tension over Iran’s nuclear stand-off with the West.
Israel’s bombing of the airport and southern suburbs of Beirut and its naval blockage of Lebanon; the continuing campaign of collective punishment in Gaza as it seeks to free three captive Israeli soldiers, together with the referral yesterday of Iran to the UN Security Council over Tehran’s nuclear program, all conspired to strongly affect market sentiments especially on the oil futures.
Oil prices surged to all-time highs yesterday. New York’s main contract, light sweet crude for delivery in August, soared as high as $76.85 before closing up $1.75 at $76.70 a barrel.
In London, Brent North Sea crude for August delivery struck a historic high of $76.95 per barrel in intraday trade, before settling at $76.69, up $2.30 from Wednesday.
And the signs, according to oil analysts in London, are that this scenario may persist at least for the immediate future. Fears of further disruption in Nigerian oil supplies due to the continued threat of kidnappings of foreign oil personnel and two reported explosions at a pipeline in Bayelsa state, owned by Italian oil company Agip; the continued tension over North Korea’s nuclear program and its testing last week of long-range missiles, albeit a failure, and the latest crude oil inventory in the US showing a decline of 6 million barrels to 335.3 million barrels, compared with an earlier forecast of a decline of 1.4 million barrels, have further impacted on oil prices.
The Paris-based International Energy Agency (IEA) on Wednesday forecast that world oil demand would increase by 2 percent per year in the next five years. Although supplies are also set to increase, the IEA stressed that there was little room for significant oil price cuts.
Finland, which currently has the EU presidency, yesterday warned of the impact of high oil prices on the European and world economies. “We’re heading for a situation where oil prices could hit European growth very, very hard,” stressed Eero Heinaluoma, the Finnish finance minister.
Analysts at banks such as Mitsubishi and Calyon stress that “geopolitical risk is out of control”. The Israeli-Palestinian conflict and the Iran standoff are the two main worries that are adding fuel to the fire of uncertainty. Israel’s heavy-handed military action in Lebanon, they stress, was one of the key factors affecting the current surge in oil prices.