Mounting tension between Iran and the West over the country's refusal to abandon nuclear research and worries over rebel attacks on oil installations in Nigeria drove crude prices higher yesterday.
Brent crude oil rose 92 cents, or 1.5 per cent, to $63.18 a barrel as political instability added to underlying concerns over demand and supply. But the gloom was offset in the UK by official figures showing there was little sign of rising costs feeding through to domestic inflation.
With the US market closed, traders in London reacted swiftly to a militant threat to halt oil supplies from Nigeria, the world's eighth biggest exporter. Heavily armed militants from the Ijaw ethnic group killed six people in a raid on a Shell platform on Sunday, the fourth in five days. The Movement for the Emancipation of the Niger Delta said it had 5,000 fighters and vowed to cripple export supplies.
Shell, the largest foreign operator, evacuated about 330 workers from four oil flow stations on Sunday but said yesterday it had no plans to pull out of Nigeria's delta.
Iran, Opec's second biggest producer, warned the West that oil prices would rise sharply if opponents of its nuclear programme introduced punitive sanctions. The United States and European Union want Iran referred to the UN Security Council over the programme they suspect is aimed at developing weapons. Iran denies the charge.
Stephen Lewis, the chief economist at Monument Securities in London, said Nigeria and Iran together supplied about 8 per cent of global oil output. "If only a fraction of this production were to be withheld from the market, the impact on the crude price would be dramatic, such is the narrow margin between global supply and demand in 2006," he said.
In the UK, there was little sign of inflationary pressure on the factory floor as manufactured goods prices fell last month despite a record surge in raw materials costs. Input prices rose by a larger-than-expected 0.9 per cent in December, taking the annual rate to 17.2 per cent, the highest since records began in 1991.
But the price of goods leaving UK factory gates unexpectedly fell 0.2 per cent as petrol and diesel prices fell. That took the annual rate to 2.4 per cent, up from 2.2 per cent in November but well below analysts' forecasts.
Government house price data pointed to a gentle housing recovery. The Office of the Deputy Prime Minister said house price inflation rose to 2.5 per cent in the year to November from a nine-year low of 1.8 per cent the month before.Reuse content