Iran tensions push up oil price

Fears of supply crunch and hopes of stimulus combine to send up price of barrel of crude

Ben Chu
Monday 13 August 2012 21:01 BST

The global oil price spiked upwards yesterday as fears grew of a looming conflict between Israel and Iran and constraints on supply started to bite.

Brent crude rose in trading by $2.16 to hit $115, the highest since May.

Israeli newspapers reported at the weekend that the Prime Minister, Benjamin Netanyahu, is close to ordering a military strike on Iran's nuclear facilities, and on Sunday the country's deputy foreign minister said the diplomatic effort to halt the Tehran regime's enrichment of uranium should now be declared dead. Iran has threatened to close the Strait of Hormuz, through which 40 per cent of the seaborne world's oil supplies pass, if it is attacked by Israel.

The supply of oil has also been constrained of late by a slowdown in North Sea production. Output from the 12 North Sea streams is set to fall by 17 per cent next month thanks to maintenance and natural decline.

The Brent oil price fell to $90 in June, having hit $125 in the spring. But the price has been rising ever since.

The future path of oil prices is complicated, however, by signs of slowing demand. Last week the International Energy Agency cut its 2013 production forecast by 400,000 barrels per day, citing the global economic slowdown.

That is reinforced today by the Centre for Economics and Business Research (CEBR), which has slashed its forecast for global growth in 2013 to 2.7 per cent, down from the 3.2 per cent it expected in April.

Some analysts said yesterday that the weakening global growth outlook might prompt the monetary authorities in the US, China and Europe to do more to boost growth, which would prop up global energy prices.

"Hopes of a stimulus are underpinning prices for oil and other commodities markets" Carsten Fritsch of Commerzbank said.

The Bank of England voted to pump a further £50bn into the UK economy in July and the European Central Bank and the People's Bank of China cut interest rates in the same month.

The chairman of the Federal Reserve, Ben Bernanke, has signalled that he is prepared to do more to support the US economy should the outlook weaken. There were reports yesterday of hedge funds placing bets on a rise in the oil price. A weekly report by the US Commodity and Futures Trading Commission showed fund managers' net long positions on crude rising by up to 20 per cent in the week to 7 August.

The CEBR forecasts that annual growth in China will slow to 7 per cent by 2016, well below the average rate over the past decade.

The think-tank says that annual growth in India will fall to 6 per cent in 2013. In the Middle East the CEBR sees growth falling to 3.4 per cent and in Africa to 4.6 per cent. For the US, it is expecting growth in 2013 of 1.7 per cent.

The eurozone is seen as contracting by 0.1 per cent, following a 0.8 per cent decline this year.

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