Prices break $70 threshold

24 April 2006
Oil prices broke another psychological barrier in the third week of April, surpassing the $70 a barrel mark for the first time in eight months. Growing geopolitical tensions and a bullish set of US stock data were behind the spike. Spot Brent was trading at $73.67 a barrel on 19 April, compared with $68.74 a barrel a week earlier.

International controversy over Iran's nuclear programme continues to dominate global supply fears. 'The current shoot up [in prices] we are experiencing is a result of the Iran problems and it's not helped by the flare-up between Israel and the Palestinians [following the 17 April suicide bombing in Tel Aviv],' said OPEC President and Nigerian Oil Minister Edmund Daukoru on 18 April. 'But mainly it's the threatening statements being made by Iran as a result of its nuclear programme.'

Tension in Daukoru's own country is adding to the upward pressure. The minister had previously said that some of the Nigerian output shut-off as a result of militant attacks was close to being restarted. But 500,000 barrels a day (b/d) of production from the Royal Dutch/Shell Group remains offline. And hopes of a settlement between the government and rebels in the Niger Delta were dashed in mid-April. The militants rejected a development plan for the region offered by Abuja and issued fresh threats to foreign oil companies.

US stock data released on 19 April compounded market unease. Crude stocks fell for the first time in a month, down by 0.2 per cent to 345.2 million barrels in the week to 14 April. Gasoline stocks the main worry, as the driving and hurricane seasons approach fell more sharply, by 2.6 per cent to 202.5 million barrels.

The question of high prices is set to dominate the tenth International Energy Forum (IEF), being held in Doha on 22-24 April, despite the fact that the gathering is designed to discuss long-term issues. 'As in Amsterdam [where the previous IEF was staged], the pressure will probably involve the usual roll call of suspects to be put forward as the perpetrators of high prices,' says Paul Horsnell, analyst at Barclays Capital. 'Some will say it is down to speculation, some will go for the concept that it is down to some primeval sense of fear, and most will try to shift the responsibility elsewhere like a hot potato.'

A slight downward revision of the 2006 demand growth forecast in OPEC's latest monthly report failed to have any calming impact on the market. The producer group is now predicting demand growth of 1.4 million b/d to 84.5 million barrels over the course of the year.

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