Oil prices set a record early yesterday of close to $47 (€38.03) a barrel before falling back on relief that a referendum victory for President Hugo Chavez in Venezuela would be likely to ensure that crude keeps flowing from the fifth largest producer.
The poll result was sufficient to boost stock markets around the world which were relieved that oil prices, which had set a record in 11 of the past 12 trading days, had stopped rising - for now at least. The Dow Jones industrial average rose more than 100 points, or 1.31 per cent, to 9,954.55 in New York while the index of the UK's top 100 public companies (FTSE 100) closed 48 points better at 4,350.
Jitters about the Venezuelan referendum on Mr Chavez's leadership had pushed US light crude to $46.91, the highest in the 21-year history of the New York Mercantile Exchange. Further disruption to Iraqi oil exports and warnings that the financial problems at Russian oil giant Yukos could hit supplies added to the pressures pushing up prices.
However, they later slipped back to $46.30 after news that Mr Chavez had won. There had been fears that workers at oil plants might have gone on strike if he had lost. Venezuela produces 2.6 million barrels per day, about 3 per cent of global output.
In London, Brent crude futures slipped back to $43.60 after hitting a new record of $44.11, the highest since Brent futures began trading in 1988.
Some analysts think the dip could prove short-lived, however, especially as the fighting in Iraq continued. Militia set fire to an oil well in southern Iraq as part of an ongoing attempt to disrupt oil exports. The attacks have succeeded in cutting exports in half to about 900,000 bpd.
Oil prices are up over a third since the beginning of the year and by a quarter since the end of June as demand continues to roar ahead at a time when global supply is running flat out.
"With demand as tight as it is and supplies as tight as they are, everything is pointing to the possibility of higher prices," said Mr Bruce Evers, oil analyst at Investec Securities.
Allowing for inflation, oil is still below the peak of more than $80 a barrel hit around the time of the Iranian revolution in 1979-80 but is above the level seen after the first oil shock of 1973-4.
Economists are starting to worry about the impact of rising oil prices, particularly if they go much higher and stay there. Mr Steven Fries, deputy chief economist at the European Bank for Reconstruction and Development, said soaring prices could be behind the recent slowdown in the United States economy.
"It is also slightly negative for other OECD countries and for most of the countries in central and eastern Europe," he said, adding that he did not expect them to suffer a recession on the back of the current oil price. "It is just not a big enough shock."
But Mr Fadel Gheit, oil analyst with New York brokerage Oppenheimer & Co, believes oil prices are poised for a big fall: "$45 per barrel is a shock for the world economy, although it will take six months for that impact to be really felt. But when the first tanker of oil leaves the Middle East and there is no buyer, prices will fall off a cliff," he said. - (Guardian Service)
