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16 Jul, 2007 03:43

Oil starts the week at 11-month highs

Refining issues in Europe and the U.S., as well as demand growth and geopolitical tensions, continue to provide price pressure.

The price of crude oil  looks like the key focus of the week ahead with both Brent and Light Sweet just below record highs hit in the wake of last year's Isreali-Hezbollah conflict.

Geopolitical tensions continue to play their part, but refining issues and the supply demand balance are also adding to the pressure.

The world's demand for oil is outgrowing its ability to supply it, therefore the price is going up and up.

At Fridays close in London and New York, Brent for August delivery was at $US 77.60 per barrel and Nymex was at $US 73.93 – both 11 month highs.

And more disturbingly, long positions in the oil market are even higher. Some analysts are predicting $US 80 per barrel as a possibility in the short term. Geopolitical tensions are a major factor.

“We have seen the biggest influence probably on crude oil prices besides robust demand worldwide has been this ongoing Nigerian crisis in the Niger Delta. There's really no sign of that abating and that has caused European supplies to be very tight,” commented Ray Carbone, the President of Paramount Options.

The U.S., Europe and the Middle East are all suffering from a lack of refining capacity in the face of this rising demand.

Refinery shutdowns in the U.S. have also added to woes, as are delays to new refinery projects in the Middle East due to cost factors.

“One of the factors driving oil prices higher has been the tightness in the refinery sector, the lack of flexibility in there. And that has had a compounding effect, we believe, on oil prices. We are seeing very strong demand growth in the non-OECD countries. There are supply problems at the moment,” commented Lawrence Eagle, Oil Industry and Markets, International Energy Agency.

Demand is only set to rise. And with other upside pricing factors for global oil including the hurricane season in the Gulf of Mexico, and possibility of further unrest in the Middle East, the price looks set to remain high into the foreseeable future.