Analysts said a growing boycott of supplies from Iran, which is Opec’s second largest producer, had encouraged traders to hoard oil contracts at higher prices
Oil prices reached a record high on Wednesday as jitters over a possible attack on Iran outweighed concerns that slowing export orders in China and the ongoing eurozone crisis cast could jeopardise global growth.
The cost of Brent crude in sterling reached £77.71 a barrel, beating a record set last year at the height of the Libyan war. US crude hit a nine-month high of $106 a barrel this week, though it slipped slightly in trading on Wednesday night.
Analysts said a growing boycott of supplies from Iran, which is Opec’s second largest producer, had encouraged traders to hoard oil contracts at higher prices.
Prices have risen steadily over the last fortnight following a growing dispute between Iran and the United Nations over allegations that the Middle Eastern state is close to developing nuclear weapons.
The UN’s nuclear watchdog was forced to quit Iran earlier this month after talks on Tehran’s atomic research broke down.
Russia warned Israel not to attack Iran over its nuclear programme, saying on Wednesday that military action would have catastrophic consequences.
Unable to act through the UN in the face of Russian resistance, the US has encouraged a worldwide boycott of Iranian oil and sanctions against its banks, but has stopped short of supporting military action.
“Iran is still the main issue; it’s keeping prices very well supported,” said Andy Sommer, an analyst at EGL in Dietikon, Switzerland.
The spike in the oil market comes after the UK price of diesel reached a record high last week of 143p a litre. It also comes amid accusations across Europe and the US that high petrol and diesel prices are the result of a dysfunctional market.
Refiners in the UK have come under fire for pushing up the price of fuel to maintain margins squeezed by falling demand. Most of the UK’s refiners are debt-laden independent operators that are currently struggling to repay debts in a period of declining sales.
Coryton, the Thames estuary refinery owned by Swiss oil group Petroplus recently went bankrupt after it was unable to run its plant at full capacity.
Coryton is expected to return to capacity after a rescue bid, but could still struggle after a sharp drop in sales across the UK.
Demand has fallen across Europe and Asia following a slowdown in economic growth last year. Figures showing China’s manufacturing sector contracted in February for a fourth straight month added to the gloom in the euro area and stirred fears about fuel demand in the world’s second-largest oil user.
Evidence that the poor economic situation is having a direct impact on the fuel market came from Singapore Airlines, which cut its cargo capacity by 20% as persistent weakness in demand and high jet fuel prices piled pressure on its profitability.
A high oil price was behind the sharp jump in the UK’s inflation last year to above 5%. A sustained rise this year could undermine George Osborne’s hopes of a recovery.
Officials in Spain, Italy and Greece are also known to be watching the oil price closely because they are major importers, especially of Iranian crude, and are vulnerable to increased costs.
Several analysts have argued the deal struck between Brussels and Athens could be endangered by a further slump in Greek economic output following a sharp rise in oil prices.
Concerns that increased demand from Chinese manufacturers and further restrictions on Iranian supplies added will push prices higher sent despite a drop in demand across Europe following. The latest developments in the long-running stand-off between Iran and Western nations countered data that indicated the Chinese and European economies are struggling to return to robust growth.
The eurozone’s service sector shrank unexpectedly this month, reviving fears that the economy could sink into recession, Markit’s Eurozone Services Purchasing Managers’ Index showed on Wednesday.
from Phillip Inman