Thursday, July 13, 2006

Record-breaking oil prices amidst Middle East Tensions

(Source Article: Oil hits record as Israel attacks -

As Israel launched a major air offensive against Lebanon on Thursday, oil prices surged past $76 a barrel. The warring between Israel and Lebanon only exacerbates the preexisting geo-political tensions in the region over Iran’s nuclear program, and the further problem in East Asia regarding N. Korea.

Adding to the increase in oil prices Thursday was a suspected explosion at an OPEC pipeline in Nigeria, resulting from militant attacks in that area. US crude to be delivered in August jumped $1.40 to $76.25 a barrel on the New York Mercantile Exchange, topping the previous $75.78 record set merely a week ago. Despite all the problems in the world’s largest oil exporting region, US consumption of gasoline remains strong. (see Oil sets new record - CNN)

US airline stocks felt the effects of the oil crisis on Thursday as shares in virtually every company tumbled: US Airways Group lost 8%; American Airlines lost 4.5% and United Airline lost 6%. However, analysts said that the outlook for airlines is improving, as they have managed to cut costs and increase revenues in recent months. (see Airline shares fall after oil hits record high - Reuters)

Analysts do not see any end to the rise in oil prices, expecting oil to rise above $100 a barrel in the coming months if Middle East warring continues, coupled with sustained demand for gasoline and other crude derivatives. The International Energy Agency also said that the world would require an additional 1.57 million barrels a day to supply economic growth in 2007—up from a previous estimate of 1.21 million.

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