Politics continues to extract a heavy price from crude markets.

The oil market once again crossed the Rubicon on Tuesday when it hit the $100 mark before receding. After dropping down to mid $80 levels just a couple of weeks back, crude seem to be surging on three major counts, the Venezuelan bash with Exxon, the ongoing events in Nigeria and the growing concerns about the output policy of OPEC. Saudi Arabia and Norway, two major crude producers, agreed that the markets are well supplied, but markets appear still itchy.

Despite gloomy predictions and uncertainties about the global economic health, oil markets thus remain firm - thanks to what is now being termed as “Chavez Surcharge” and the ongoing law and order problem in Africa’s largest producer, Nigeria. Analysts are suggesting the Chavez Surcharge is almost as big as $3.5 per barrel.

And this has happened despite the fact that as per the International Energy Agency forecast the world oil market could be set for a lengthy slowdown.

In the meantime, the OPEC has also lowered its projections for growth of oil demand this year, which is a direct consequence of the slowdown to the world economic momentum.

OPEC in its February Monthly Oil Report said demand would likely grow by only 1.43 percent this year rather than its previously estimated 1.52 percent.

OPEC says demand for its crude was expected to be even less in 2008 relative to its forecast in January following a revision to 2007 data. The daily consumption of OPEC oil this year was now forecasted to be 375,000 barrels less than in 2007, averaging 31.53 million barrels a day in 2008. And on the other hand, the OPEC production minus Iraq, the only OPEC member that isn’t part of the output quota, was 29.79 million in January, up 136,000 barrels a day from December. Including Iraq, OPEC output last month was around 31.99 million. Saudi Arabia alone pumped 9.08 million barrels a day in January, up 100,000 barrels a day from December the OPEC data said.

Even as per Platts, the OPEC crude production rose by 220,000 barrels per day in January, to 32.25 million barrels a day from 32.03 million in December. OPEC’s January production was nearly 290,000 b/d higher than the official target. A significant part of this increase came from Saudi Arabia, Platts said.

Excluding Iraq, the 12 OPEC members bound by output agreements produced an average of 29.96 million b/d in January, up 230,000 from December’s 29.73 million and 287,000 in excess of their 29.673 million targets.

But despite all this, prices refuse to be tamed. One could feel there is something wrong somewhere.

Oil traders are now also blaming the ongoing legal battle between the American oil giant ExxonMobil and Venezuelan state-run oil company Petroleos de Venezuela SA (PDVSA) for this current bump in oil prices.

Venezuela under leftist Hugo Chavez has been nationalizing the oil and gas sector, for some time now, reducing the stake of the oil majors in its energy assets. And this appears to be the primary cause of the conflict.

A number of oil majors, including Total of France have given in and accepted the new terms on the grounds that high prices on oil were still making its production in Venezuela a lucrative business.

Under the agreement, he Venezuelan government also agreed to pay Total about $830 million to make up for its reduced share in the project.

However, the American oil major, ExxonMobil declined to accept the new terms and in 2007 the company was forced to leave the country, thereby depriving it of a lucrative asset. Consequently Exxon Mobile sued PDSVA in several European and American courts, demanding full and fair compensation for the lost asset. The courts lately ordered the freezing of $12 billion of PDSVA’s global assets as a guarantee on the eve of the trial.

PDSVA, the state giant, has about $90 billion worth of property all over the world. If the court orders are fulfilled, the company and Venezuela as a country will sustain heavy losses.

As a tit for tat in the ongoing tussle, Venezuelan President Hugo Chavez, known for his anti-American rhetoric, threatened to discontinue all oil supplies to the United States. If it is done, the US economy could suffer disastrous consequences. On average the United States imports about 10 million barrels of oil per day. Venezuela ranks fourth in US oil imports after Canada, Saudi Arabia and Mexico.

But despite the call, for Venezuela to implement such step would be difficult if not impossible. Today Venezuela sells almost all of its oil to the United States. This is why, despite the initial announcement, realizing apparently the stakes were too high in this game of brinkmanship; Caracas later relented and did not fully implement its threat. It clarified it was barring ExxonMobil, the root cause of the problem, and not the US from receiving the Venezuelan oil.

Thus the tug of war between Administration in Washington and its next-door nemesis Hugo Chavez continues unabated - making the markets still itchier. Coupled with the situation in Nigeria, a new surcharge thus has been added to the already turbulent markets, analysts now emphasize.

Once again it seems forces outside the typical demand - supply factors are impacting the global crude markets. Indeed politics and oil continue to go hand in hand and despite efforts to separate the two, which does not seem to be plausible - at least for now. Oil prices thus continue their upward march.

“Frequent supply disruptions ... and a broader sense of supply insecurity brought about by tense relationships between producers and consumers are factors explaining the remarkable strength in oil prices,” underlines Barclays Capital analyst Kevin Norrish.

There is little thus that OPEC could do in the circumstances. Politics continues to take its toll — and a heavy one!