Oil has jumped to $112 a barrel, a six-month high. A likely Western air strike on Syria has raised fears of supply squeezes. That came on top of further recent supply bottlenecks such as a fall in Libyan output to the lowest levels since the civil war in 2011. A sharp slide in US crude supplies, meanwhile, points to higher demand.
Yet Syria itself is a minor producer. While the conflict could spread beyond its borders, that doesn’t look likely at present, says Tim Evans of Citi Futures. Moreover, despite fears that Egyptian turmoil could close the Suez Canal (a key supply channel), it has remained open ever since the Arab Spring first began.
Politics aside, the fundamentals are uninspiring. US demand has picked up but emerging markets’ appetite for oil is weakening, says Longview Economics. The Bric (Brazil, Russia, India and China) economies, which accounted for 90% of total demand growth in 2012, are all slowing. Russian industrial production is sliding. In India, vehicle sales are falling. High prices also undermine demand, says Liam Denning in The Wall Street Journal. In euros and rupees, oil prices – expressed as a rolling 12-month average – are respectively 20% and 33% higher than in 2008.
Supplies look plentiful too, says Longview. Strong production in the US, Canada and Russia is offsetting outages in Iran, Nigeria and Libya. The upshot is that last year’s supply surplus of 0.65 million barrels per day – the first surplus in the global market since 2008 – will be eclipsed this year and next. This latest jump in prices looks unsustainable.
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