x Abu Dhabi, UAEWednesday 17 January 2018

Global events propel oil on to centre stage

Oil gains on concerns of supply disruption in the middle east and increased demand from Japan following the devastating earthquake that took out a number of its nuclear plants.

Oil prices gained for a second day because of renewed concern about supply disruptions amid rising tensions in the Middle East and increased demand from Japan after last week's earthquake and tsunami.

Futures rose as much as US$1.81 in London, after the Obama administration indicated its readiness to vote at the UN to authorise the imposition of a no-fly zone over Libya and other military actions to protect civilians. The country is estimated to have lost nearly two-thirds of its oil production as fighting between government and rebel forces continues.

Bahrain Petroleum, the operator of the country's only refinery, shut down up to half of its petrol stations and some of the company's exporting activities, The National reported this week.

Moreover, Makiko Kikuta, Japan's vice minister of foreign affairs, asked Indonesia to supply more liquefied natural gas and oil, in the absence of nuclear energy. The disaster accounted for the loss of 9,702 megawatts, equivalent to a fifth of the country's nuclear plant capacity.

Crude for April settlement was up 2.4 per cent to US$100.39 a barrel on the New York Mercantile Exchange.

UBS, the Swiss investment-bank, raised its Brent crude forecast yesterday to $103.75 a barrel from $85 because of the turmoil. It adjusted its projections for next year to $95.

"We are now raising our oil price forecast to reflect the impact of the cut in Libyan crude supply and the raised risk premium," UBS said.

In the medium to long term, oil-producing states should begin to accumulate sizeable budget surpluses, as oil continues to trade above $100 a barrel, a promising sign for government spending and social reform packages.

"As the political landscape eases, we should begin to see increases in government spending, in addition to remuneration of government employees and the wider population being compensated from higher oil prices, which should be positive for the region," said Saleem Khokhar, a fund manager at National Bank of Abu Dhabi.