The most closely watched triggers for oil prices have turned from China's consumption and OPEC production to Nigeria and Iran. Political turmoil may determine prices for some time.
Iran warned yesterday that it may close the Strait of Hormuz to all shipments of crude. Twenty percent of the world's?oil passes through the space between the Persian Gulf and Sea of Oman. The action?could be a response to sanctions to be brought against Iran by the U.S. and other nations.
The problems in Nigeria are more fluid. The Taliban in the African nation has been behind spreading violence. Clashes between a faction of?the Muslim population?in the country and a portion of the Christian population have sprung up.
Iran ranks fourth among the world's nations in terms of proven oil reserves. Nigeria ranks tenth.?A production disruption in one, particularly a?long one, could push up oil prices. A disruption in both countries could cause oil prices to soar.
The new focus on the forces that move oil prices has shifted in just a few weeks. Earlier in the month, OPEC said it would keep production at current, relatively high levels. And a slowdown in China's PMI?was an indication that the appetite for crude in the world's largest net importing nation might have slackened a bit. Oil prices began to back down from nearly $100.
In the past year, as the world briefly recovered from a deep recession, oil demand became a the major issue as markets considered the direction of?crude prices. The issue is now more one of supply as political problems in two countries trump most other forces that make crude prices move.
Douglas A. McIntyre
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