Uncertainty behind increase in oil prices

Associated Press

NEW YORK

Political unrest and rising tensions across the Middle East and North Africa are causing unprecedented uncertainty in oil markets.

Eight countries in the world’s biggest oil- producing region are in some stage of upheaval. As longtime rulers face revolts, fear of what could happen to oil fields, refineries, pipelines and shipping routes is what has driven oil prices past $100 a barrel for only the second time in history.

“The genie is out of the bottle,” says oil analyst Fadel Gheit of Oppenheimer & Co. “Things are a lot worse than they appear.”

The Middle East and North Africa supply about 29 percent of the world’s oil. Throughout the region, oil production is controlled not by independent companies but by governments — which is one reason why oil prices are so tightly linked to political stability.

In the late 1970s, supply disruptions during Iran’s Islamic revolution and fears it would spread across the region kept prices high for about two years. In the past decade, the war in Iraq, attempted attacks on Saudi oil facilities and large protests in Iran have caused jitters in the oil markets and pushed prices higher.

But never before has instability plagued so many countries across the region at the same time. “It’s not an isolated incident,” says Gheit. “It’s really a mess, and that’s why the market is reacting the way it is.”

U.S. benchmark oil prices climbed as high as $103.41 per barrel Thursday before settling at $97.28 — a 15 percent rise since the start of last week. Gasoline prices have risen to an average of $3.23 per gallon, and they are likely to flirt with $4 a gallon in some parts of the country by summer, analysts say.

So far, the most dramatic upheaval has occurred in countries that are not huge oil producers. And oil supplies have barely been affected. Violence in Libya has forced oil companies to idle up to 750,000 barrels a day of production, or less than 1 percent of global demand, according to the International Energy Agency.