Political unrest sends oil price soaring and US stocks falling

Traders are worried that supplies of crude could be disrupted should present world tensions escalate, writes Martyn Wingrove, Lloyds List
Published: Jul 14, 2006

RISING geopolitical tensions, pipeline explosions and falling stocks in the US have pushed oil prices to new highs of more than $75 a barrel.

With Israel blockading Lebanon, Iran refusing to halt its nuclear programme and Korean missile talks breaking down, traders fear tensions could escalate and disrupt crude supplies from the Middle East.

Crude prices in New York rose to record levels of $75.89 and benchmark Brent prices surged to $75.60 yesterday morning on the back of these incidents and the bullish US stock data.

Oil exports from members of the Organisation of Petroleum Exporting Countries may be at threat if these tensions are increased.

Production from the organisation’s only West African member are already falling because of unrest, and this week’s incidents have caused more supplies to be cut.

Oil exports from Africa’s top exporting country Nigeria have been hit by two explosions on Eni’s pipelines that cross the Brass river, causing environmental damage.

Tanker loadings will be affected as the Brass area usually exports 200,000 barrels per day, and Italian firm Eni needs to repair the pipeline before restarting production operations.

Nigerian production is already down 470,000 bpd due to attacks on Shell’s facilities in the first quarter, while militants have also attacked supply lines to Chevron’s Escravos oil fields.

‘Geopolitical risk is out of control. There’s a pipeline attack in Nigeria, Israel is taking a strong stance and that’s adding fuel to the fire,’ said Tony Nunan, a risk manager with Mitsubishi Corp.

‘But more than anything it is US gasoline demand holding up and the Iran situation that is driving the market.’

According to the Department of Energy’s latest report, US crude stocks have fallen 10m barrels in four weeks to 335m barrels, and gasoline inventories have tightened to 212m barrels.

‘Crude inventories have continued to descend in the key regions, even in the face of a fall in refinery runs,’ said Barclays Capital analysts in their latest report.

‘The level of crude oil imports into the US remains muted on a par with a year ago. But the bullish side of the data is again gasoline and the East Coast market is now extremely tight.’

Tensions are high in the Middle East, with the Arab League meeting in Cairo this weekend after Israel attacked the Lebanese commercial airport and blocked key ports.

These actions are in response of the kidnapping of two Israeli soldiers in Lebanon and coincide with an offensive against Hizbollah forces.

Also in the region, Iranian president Mahmoud Ahmadinejad said the world’s fourth largest oil exporter will not abandon its right to nuclear technology.

The case has now been referred back to the United Nations Security Council.

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