Tension in the Gulf, sanctions against Iran and disruptions to African exports have created a threat level last reached during the Iran-Iraq war, says a leading banker.
Concern high over global oil supplies
The risks to global oil supplies are greater than at any time in the past 30 years, according to a leading banker.
Tension in the Gulf, sanctions against Iran and disruptions to African exports have created a threat level last reached when tankers transiting the Gulf were attacked during theIran-Iraq war.
"Not since the late 1970s/early 1980s has there been such a serious threat to oil supply," said Soozhana Choi, an energy analyst at Deutsche Bank, adding that Iranian threats to close the Strait of Hormuz were unsettling. Oil futures in London are expected to open near an eight-month high today, having closed at US$119 a barrel on Friday, while US crude oil ended the week at $103 a barrel.
Iran's refusal to halt its nuclear programme has led to a fourth round of sanctions by the US, designed to interrupt the payment mechanisms for its oil exports. The EU last month imposed an embargo on Iranian oil, to take effect from July, and Tehran responded by announcing an immediate end to exports to six European countries. Iran's ministry of petroleum announced yesterday that crude oil exports to the UK and France had been stopped.
"We will sell our oil to new customers," Alireza Nikzad, a spokesman, was quoted as saying on the ministry of petroleum website.
Threats by the Islamic republic to block the Strait of Hormuz, the waterway that carries 30 per cent of the world's crude supply, have added a $10 premium to the per-barrel price, experts say. Exports from South Sudan have come to a halt as Khartoum insists on a transit fee for crude flows through the Greater Nile Oil Pipeline in Sudan that far exceeds the amount Juba is willing to pay. The security situation in Nigeria is threatening oil production, while a strike by oil workers has halved Yemen's production.
Syrian crude no longer flows to Europe after the EU slapped an embargo on Damascus over the violent crackdown on opposition by the Assad government.
"The number of supply threats is extraordinary," said Seth Kleinman, the head of energy research at Citigroup. The halt of Iranian supply to Europe has been partially offset by a return of Libyan oil exports, which traditionally feed European refineries.
"The rapid recovery of Libyan crude supplies is undoubtedly good news for the sector, in particular the Med refiners geared into processing Libyan crude," said Goldman Sachs in a research note. "This benefit, however, may be entirely offset by the EU's sanctions on Iranian crude."
In spite of the threat of recession arising from the sovereign wealth crisis in Europe, demand for oil at the retail level is defying expectations.
Asian demand in particular is stronger than analysts had predicted at the end of the year, as the Chinese economy remains buoyant and Japanese demand is returning fast.
"While the year started with rather fat tail risks on either side, emanating from the contagion effect of the sovereign-debt crisis on the one hand and a possible blowout of any number of geopolitical risks on the other, the former is diminishing quite rapidly," said Barclays Capital in a report.
Spare production capacity among Opec producers is sufficient to make up for significant interruptions, mainly through the ability of Saudi Arabia to increase production by another 2 million barrels a day.
"Opec spare capacity is sufficient to offset the loss of Iranian exports or a combination of smaller losses but not the totality of the potential disruptions, though we acknowledge that this is a low probability," Ms Choi said.