The immediate reasons for the rising prices are a late winter chill in the northern hemisphere, coinciding with fears surrounding refining capacity, and renewed turmoil in the Middle East. The comments of OPEC members and officials have done little to calm the market, with talk of oil at $40-50 a barrel throughout the year and even the alarming spectre raised in early March of prices at double that level.

Added to these factors are familiar longer-term worries about a thin capacity cushion and strong demand growth forecasts - subject to repeated upward revision - on the back of global economic performance that, while unlikely to match 2004 levels, is expected to remain healthy for the remainder of the year.

Recent events in the world's key oil-producing region have yet to remove a single barrel from the global market - bar the ongoing unrest in Iraq and with it the repeated sabotage of the northern export infrastructure. But traders have been shaken by the increasing tension, which began with Washington turning up the volume of its anti-Iranian rhetoric and continued with the assassination of former Lebanese prime minister Rafiq Hariri in mid-February, leading to US denunciation of Damascus' political domination of Beirut. The flurry of activity naturally intensifies awareness of energy dependence on a volatile region. Acting OPEC Secretary-General Adnan Shihab-Eldin reinforced consumers' sense of vulnerability after widely quoted comments that oil prices could reach $80 a barrel in the event of a serious supply disruption.

Ironically, however, the source of tightness in the key US market is less a lack of crude supplies than a stretched refining system. Weekly stock data figures have recently been painting a relatively consistent picture of rising crude inventories accompanied by draws in distillate stocks, as northern hemisphere temperatures plummet. In the week to 25 February, refineries operated at a mere 89.3 per cent of capacity, according to the Energy Information Administration, part of the US Department of Energy. Several refinery accidents were responsible for the particularly low figure, but it is symptomatic of a wider problem: OPEC's incremental barrels are largely of heavy, sour crude and insufficient spare conversion capacity exists to process them.

'Overall, the flow of global demand data leads us to believe that demand growth is still being significantly underestimated in most sets of global balances,' says Kevin Norrish, an analyst at Barclays Capital. 'The stresses along the supply chain would be expected to be severe with demand at those levels, and the refining industry remains the point of greatest weakness and inflexibility.'

A small consolation for consumers is that the sudden surge in prices has coincidentally come in the run-up to OPEC's scheduled quarterly meeting, to be held in Iran on 16 March. Murmurs that delegates might opt to lower the 27 million-barrel-a-day (b/d) output ceiling, to guard against the second quarter's typically weaker demand, have died down. Instead OPEC ministers have become unusually consensual in hinting at a rollover. Output from the OPEC 10, excluding Iraq, was about 27.7 million b/d in January, a substantial cut from the December average of some 28.2 million - largely thanks to Riyadh delivering on the group's late-2004 pledge to trim output in line with quotas. But the appetite for further cut