Oil prices extended their long rally last week with Brent hitting $29.53 a barrel on 24 September, its highest level since 11 September last year. The surge was fuelled by bad news in both Gulfs.
In the Middle East, sabre-rattling over Iraq has grown more intense with the US and the UK attempting to discount Baghdad's moves to conditionally open the door to weapons inspectors. The release by Downing Street of a dossier assessing the threat posed by Saddam Hussein's attempts to develop weapons of mass destruction has been regarded by oil traders as another component of the diplomatic offensive that could culminate in military action against Iraq. Although an Iraqi premium has been factored into oil prices for some time, it has continued to rise since mid September.
The rise in prices has continued despite signs that Iraqi output has increased considerably since the mid-September move by Baghdad to drop its surcharge policy. With the premium on Iraqi oil dropping to $0.05 from about $0.15, Iraqi sales increased to an average 1.9 million barrels a day (b/d) in the week to 20 September, up from an average 686,000 b/d over the prior four weeks.
In the Gulf of Mexico, tropical storm Isidore continues to apply upward pressure to oil prices. High winds and high swells have threatened one of the US' largest oil producing areas - the storm has already shut in some production and forced the evacuation of non-essential staff. Isidore has also forced the closure of the Louisiana offshore oil port, the US' only deep-water oil port. The port is the main conduit for oil imports and its closure could negatively impact US crude inventories. American Petroleum Institute weekly data released on 24 September showed crude stocks had declined by 2.2 million barrels in the week ending 20 September, marginally more than analysts had anticipated.