The price of oil climbed above $30 (€28.75) a barrel yesterday, its highest level in 15 months, amid growing fears of war against Iraq and a crippling oil strike in Venezuela, the world's fifth-largest producer.
Brent crude yesterday hit a peak of $30.39 a barrel taking its rise this year to almost 50 per cent. Analysts warned of an even sharper surge to come.
The chief economist at Goodbody Stockbrokers, Mr Colin Hunt, said oil prices would move towards $40 per barrel as military conflict in Iraq drew nearer. Such increases would inevitably be passed on to consumers as oil companies tended to be "rather responsive" to high prices.
Mr Bill Dudley, chief US economist at Goldman Sachs in New York, said: "Under-investment in oil infrastructure over the past decade has made it harder to get oil to market. As a result any disruptions could produce a very significant rise in price."
The climb in oil prices has come at a delicate time for the US economy, with consumer and business confidence still fragile. Fears are growing that turbulence in the Middle East and Venezuela may impede global growth and push up inflation in 2003.
The most immediate concern for oil traders has been the strike paralysing production in Venezuela. The country's oil exports have fallen from 2.7 million barrels a day in November to about 200,000 barrels a day.
The strike yesterday entered its 26th day with no end in sight. Even a swift end to the strike would not immediately restore exports. Experts estimate that the damage caused to Venezuelan oilfields by the shutdown could reduce the country's long-term production capacity by between 5 and 20 per cent.
Meanwhile, demand for oil has increased in Japan, where several nuclear reactors have been closed due to safety concerns.
Traders are braced for a volatile year for oil prices, which may make it harder for the Organisation of Petroleum Exporting Countries to achieve its goal of keeping oil within a range between $22 and $28 a barrel. "What we're seeing is the greatest spread of possible prices for many years," said Mr Hunt.
Much will hinge on the outcome of United Nations efforts to ensure Iraq complies with disarmament demands.
Warning of further uncertainty in the energy market, Mr Hunt said oil prices would fall sharply if the Iraqi regime-change sought by the US and its allies was achieved quickly. But steep price rises would continue if the conflict became a very drawn out affair.
A recent paper by the Centre for Strategic and International Studies said that even a brief and successful war with Iraq would push oil up to around $36 a barrel, before falling swiftly as Iraq resumed pumping oil for export markets.
The paper warns that a more prolonged conflict could push oil above $40, with the price remaining above $30 until the end of 2004.
Mr Dudley said: "The concern is that the Iraqi leader will succeed in damaging oil production facilities in the region. Oil is already proving a slight drag on growth but in this fragile global economic environment a sustained rise in oil prices would be a real threat." - (Financial Times Service)
