Euro denominated oil hits record, surpassing the peak touched in the 2008 price spike and posing a fresh problem for eurozone economies already struggling under the weight of the region’s debt crisis.
OOPS! Better be friendly to those Iranians...
The surge in prices comes on the back of rising tensions between the west and Iran, the world’s third-largest oil exporter. Under the burden of sanctions by Europe and the US, the country is facing growing difficulty selling its oil internationally, forcing other producers such as Saudi Arabia to step in and squeezing spare capacity – the global oil industry’s ability to respond to shocks.
Euro denominated oil hits record
By Jack Farchy, Emiko Terazono and Javier Blas
Oil prices soared to a record high in euro terms, surpassing the peak touched in the 2008 price spike and posing a fresh problem for eurozone economies already struggling under the weight of the region’s debt crisis.
The euro-denominated price of Brent crude, the global benchmark North Sea crude, rose to a peak of €93.63 a barrel on Thursday, surpassing the previous high hit on July 3, 2008. The new euro record comes just a day after Brent hit a record in sterling terms.
The rally in the price of crude denominated in the two major European currencies is likely to push up the imported cost of oil. It may undermine growth as well as demand for refined oil products, analysts said.
“This is a regional oil shock,” said Amrita Sen, commodities analyst at Barclays Capital in London.
The surge in prices comes on the back of rising tensions between the west and Iran, the world’s third-largest oil exporter. Under the burden of sanctions by Europe and the US, the country is facing growing difficulty selling its oil internationally, forcing other producers such as Saudi Arabia to step in and squeezing spare capacity – the global oil industry’s ability to respond to shocks.
In dollar terms, oil prices also surged more than 1 per cent higher, touching a fresh nine-month peak of $124.48 a barrel, though they remain well below their 2008 record of $147 a barrel.
Vitol, the world’s top oil trading company, this week told the Financial Times that oil prices could reach a fresh record in dollar terms above $150 a barrel this year. Ian Taylor, chief executive of the trading house, said that oil prices would probably remain around $120 but “geopolitical risk, especially in the Middle East, creates potential material risk to the upside”.
As tensions rise between the west and Iran, other oil producing countries have been forced to step in with extra supplies, putting pressure on global spare capacity
High oil prices are becoming a more pressing political issue. Olivier Jakob, head of Petromatrix, a Switzerland-based oil consultancy, forecast that high oil prices would become a dominant feature of political debate on both sides of the Atlantic. “The oil price is only starting to move into the political debates but that will increase further,” he said. “In the eurozone, the weighted average prices of gasoline and diesel at the pump are printing new record highs.”
European refiners have already cut their imports from the country ahead of an embargo due to come into force at the start of July, while other major buyers of Iranian oil such as Japan, South Korea, and China are also reducing their purchases under pressure from the US.
However, disruptions to oil supply in other smaller, but significant, producers such as Sudan, Syria and Yemen have also supported prices.
In a note to clients on Thursday, David Greely, oil analyst at Goldman Sachs, forecast that oil could rally to $127.50 within a year. But, adding a more bullish note, he said: “We see the risks to our forecast as skewed to the upside as world oil inventories have not been building despite Saudi Arabia pumping at its highest levels in 30 years and Libyan supplies returning to the market.”
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