Paris, January 22:

Oil prices which are near historic highs above $70 a barrel, more than triple their level of four years ago, are being pushed up by a combination of geopolitical and technical factors.

GEOPOLITICAL TENSIONS: The main reasons for recent rises, with oil markets reacting to each new development from two fronts, Iran and Nigeria, which are major producers and members of the Organisation of Petroleum Exporting Countries (OPEC). In both cases, traders fear a long-term disruption of supplies, in the event of international sanctions against Iran which has resumed its nuclear research programme, and owing to repeated attacks on Nigerian oil installations.

Any loss of crude would be impossible to completely replace given the current delicate balance between supply and demand. Added to that is a terrorist factor raised by new threats

from Al-Qaeda against the US, and longstanding sources of tension such as Iraq.

This has created ‘accumulated concern’ among oil traders on a market that has little room

for manoeuvre and was rocked by the recent gas dispute between Russia and Ukraine, one expert explained.

DEMAND GROWTH REMAINS STRONG: Almost simultaneous rebounds by economies worldwide in the past two years has led to a surge in oil consumption, particularly in China and the US, and is expected to continue this year.

The International Energy Agency (IEA) forecasts global demand will grow by 2.2 per cent in 2006, to 85.1 million barrels per day (bpd). China has recently clarified in part statistics on

its economic growth, but its future oil needs remain a major question.

LACK OF PRODUCTION CAPACITY: Oil output is finding it hard to meet the surge in demand. Most producer countries are pumping at full capacity and only Saudi Arabia has real spare capacity, estimated at around one million bpd. That crude is heavy, however, and difficult to refine.

The lack of leeway in the event of a problem in a major producing country is a serious source

of concern for many market players.

In general however, problems in the past few years have been taken to heart by both producer countries, which are increasing investments little by little, and by consumer countries which have rebuilt strategic stocks.

LACK OF REFINING CAPACITY: Oil analysts and OPEC had already underscored the issue, and hurricanes last year in the US brought attention back to weaknesses in the refining sector, which has become a serious bottleneck.

No refineries have been built in Europe and the US in the last 30 years and existing facilities

often require major repairs.

On top of that, some refineries cannot handle heavy crude, which is all producers can offer on top of their usual output. A lack of refined products such as petrol and heating or diesel fuels has contributed to increased crude prices.

OPEC caught between Iran, West

PARIS: Organisation of Petroleum Exporting Countries (OPEC), which is to set its production policy for the coming months at the end of January, risks being dragged into a conflict pitting Iran against Western oil consuming nations.

The Organisation of Petroleum Exporting Countries, which pumps about 40 per cent of the world’s oil, is due to meet on January 31 in Vienna to decide whether or not it should cut its output in the second quarter, when demand usually eases as warmer weather comes

in the northern hemisphere. However, the decision will not be easy to take with oil prices only two dollars away on Friday from an all-time high of $70 and amid uncertainty about global oil demand, especially from China. — AFP