Oil price pushes towards $50

13 April 2012

FRESH fears over oil supplies pushed the price of crude toward $50 a barrel today. US light crude hit a new high of $49.62 a barrel, up 74 cents on the day and beating the previous high of $49.40 set in late August. In London, Brent crude oil futures in surged 67 cent to a new peak of $46.

Fresh concerns about the stability of supplies from Iraq, Nigeria and Russia sparked the surge in prices.

The value of crude was driven higher last week by a big dip in US stockpiles, at a time when inventories should be building ahead of winter months.

Clashes in Saudi Arabia between security forces and suspected al Qaeda members at the weekend, along with continued attacks on oil infrastructure in Iraq, have heightened concerns over the potential for a severe disruption to Middle East crude flows.

Meanwhile rebels in Nigeria, Africa's top oil exporter, said at the weekend they would extend an uprising across the country's entire oil-producing southern delta, where industry giant Shell has evacuated more than 200 staff from two oilfields due to increasing violence.

There is also still uncertainty over the stability of supplies from Yukos, Russia's top exporter, after the company's battle against bankruptcy led to hiccups in output and deliveries last week.

The Opec producers' cartel, which controls more than half of global crude exports, is producing almost 30m barrels per day, the highest level since the late Seventies. However, the cartel today insisted it was supplying enough oil to the market and that near-record prices were not due to any imbalance in supply and demand.

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RISING DEMAND

China's economic expansion has given a dramatic boost to world oil demand. Chinese crude imports are up 40% so far this year. Indian oil consumption is rising fast too while solid growth in the US economy, which devours a quarter of all world oil, has not slowed yet despite oil price gains.

CAPACITY CRUNCH

Opec producers have pushed supplies to the highest level in 25 years in an effort to keep prices under control. This has left little capacity outside top exporter Saudi Arabia and even Riyadh has little spare.

The strain on the supply system has left it more vulnerable to supply disruptions like outages in Iraq due to strikes on infrastructure. Oil exports have restarted through the main northern pipeline to Turkey after engineers completed repairs from a bomb attack on 2 September. Saboteurs last week attacked another pipeline feeding an oil refinery at Baiji.

Meanwhile, an extreme hurricane season in Caribbean has also raised fears of disruption to wells in Florida.

POLITICAL TENSIONS

Violence in post-war Iraq has restrained exports. Supplies from Russia also are a concern. Leading oil company Yukos is fighting bankruptcy after the Kremlin cracked down on oligarchs like former Yukos boss Mikhail Khodorkovsky. Traders fear Islamic militants could target oil infrastructure in Opec's biggest producer Saudi Arabia.

REFINERY BOTTLENECKS

Environmental regulations in the West are pushing up the price of making fuel, forcing companies to build expensive new facilities and making it harder to ship supplies between regions.

US gasoline demand is rising in part because of the growing numbers of low-mileage-per-gallon sports utility vehicles on America's highways. The United States accounts for about 45% of world gasoline consumption.

SCARCER OIL

Big oil reservoirs are becoming harder to find and more expensive to develop. Many of the oil provinces outside Opec are mature, which means that finds are now smaller, need more costly technology to develop and fall faster from peak production.

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