Crude futures hit six-month highs

Crude oil futures on the New York Mercantile Exchange (Nymex) hit six month highs of $25.61 a barrel (bbl) on March 21 as a combination of rising demand, continued supply curbs and fears of US action against Iraq drove prices higher.

Aaron Brady, manager, global product market analysis at Boston-based research firm Energy Security Analysis Inc (Esai) said it is hard to quantify how much the recent price increases are due to continued speculation that the US government will extend its war on terrorism to Iraq or fundamentals of supply and demand. But he said both are driving the market upwards.

“Some analysts are suggesting that there is a $2-$3 war premium [on the price of a barrel of crude] in the market right now,” he said. Iraqi production makes up about 4% of world oil output.

The Organisation of Petroleum Exporting Countries (Opec) has itself sought to blame tensions in the Middle East for oil price increases. Speaking at the most recent Opec meeting on March 15 in Vienna, Nigerian oil minister and Opec president Rilwanu Lukman said current international tensions, particularly in the Middle East, “threaten to destabilise the global economy” and may distort realities in the oil market.

Also at that meeting, Opec chose to extend the production cut it implemented on January 1 at least until its next scheduled meeting on June 26. Opec cut production by 1.5 million barrels a day (b/d) in January to 22.7 million b/d. Brady said the effect of these cuts is beginning to be felt as inventories in consuming nations – particularly the US – start to decline. He said: “If these cuts stay in place – and I expect they will for the first half of 2002 at least – they will begin to create substantial inventory deficits later in the year, which may drive prices higher.”