World oil prices have set fresh record highs as violence in Iraq disrupts exports, underlining concerns over acutely stretched global energy supplies. US light crude touched $45.04 a barrel this afternoon, a record in the 21-year history of crude futures trade on the New York Mercantile Exchange.
Mr Daniel Yergin, Cambridge Energy Research Associates
In afternoon trade, US crude was off six cents on the day at $44.72 and London Brent crude was down 11 cents at $41.45 a barrel.
Yesterday, saboteurs loyal to radical cleric Moqtada al-Sadr blew up the main 48-inch pipeline that runs from Iraq's southern oilfields to its offshore Basra and Khor al-Amaya terminals in the Gulf.
A second smaller pipeline was closed as a precaution, although shipments continued from storage and an official from the South Oil Company said supplies should resume along both pipelines on Wednesday.
"The prospect of a cessation of Iraqi exports from the country's southern ports for a prolonged period would almost certainly be enough to push oil prices above $50 a barrel since there is not enough spare capacity to cover the 1.7-1.9m bpd of oil exported from Basra," analysts at Barclays Capital said.
Oil prices have climbed more than 30 per cent so far this year for fear that supply may not cope with the fastest demand growth in more than two decades. Demand has remained buoyant in China and the United States, despite high prices.
"The world has one of the smallest cushions ever for absorbing a loss of supply while demand growth is the strongest in a generation," said Mr Daniel Yergin, chairman of US-based consultancy Cambridge Energy Research Associates. "These conditions mean the world oil market is even tighter than in 1973 oil crisis."
In real terms, stripping out inflation, oil prices remain much lower than the highs of 1979 during the Iranian revolution when crude averaged $80 a barrel in today's money.
World oil producers hold very little spare capacity. The OPEC cartel is pumping about 30 million barrels daily, volumes not seen since 1979.
Another source of anxiety is Russia's largest oil company YUKOS, which is battling bankruptcy. Russian bailiffs yesterday seized the main YUKOS production unit Yuganskneftegaz for the second time, a move interpreted as a sign of the state's resolve to dismantle the oil company.