Fool News: Possible Conflict Triggers Oil Price Spurt
US oil prices hit a high of almost $88 a barrel on Tuesday.
US oil prices hit a new high of almost $88 a barrel on Tuesday, triggered by political instability and fuelled by several longer-term factors.London Brent crude also traded above $83 for the first time, rising to $83.26 as the impact of rising world demand, delayed investment in supplies and the weak dollar were increasingly felt.The immediate trigger for the latest price surge was the fear that a possible Turkish attack against Kurdish separatists in Iraq would disrupt oil supplies in the region. On Monday, the country's cabinet asked its parliament for permission to launch the assault, after 13 Turkish soldiers were killed close to the Iraq border.David Fyfe of the International Energy Agency told the Telegraph that individual geopolitical events can substantially affect oil prices in what remains "a fairly jittery market".He added: "There are a number of geopolitical factors affecting Nigeria, Iraq and, maybe further down the line, Iran. It's the confluence of all these factors that is keeping oil very high."But the Turkey-Iraq tension is the just the latest in a series of developments which have combined to make the oil price surge.Increased demand for the commodity in China and India, two of the world's fastest growing economies, is a big factor. These nations are now thought to account for around 12 per cent of global oil consumption, compared to under eight per cent ten years ago. Angus McPhail of fund manager, Alliance Trust, explained that such a sharp increase in demand has "taken away any slack" in the market, and made oil prices rise "at the slightest fear of restricted supply".The supply situation may come under sharp focus in the next few months. Low oil inventories in many countries recently lead the Organisation of Petroleum Exporting Countries (Opec) to announce it was to boost output by 500,000 barrels a day from November. However, this week Opec admitted that the demand for oil in the US - the world's largest consumer of heating oil - was stronger than expected this winter. The organisation acknowledged that "downward [economic] pressure has receded in recent weeks, following the US Federal Reserve's decision to cut US interest rates by half a per cent".Opec also emphasised that non-member nations were set to cut oil production, with around 110,000 fewer barrels of oil to be produced each day.Analysts are emphasising that the market is on edge and any more unexpected developments could push the oil price even higher.