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Brent crude soars on Middle East unrest

Unrest in the Middle East and rising demand forecasts from Opec and the IEA have combined to push oil prices to their highest levels since the spike of 2008

On 22 February the front-month Brent contract was trading at around $107/b.

Upheaval in Egypt, which began in late January, pushed Brent above $100/b. But as the street protests spread to Bahrain and Libya, oil jumped again. Prices for WTI, which have been trading at a large discount to Brent, have also surged. The March contract gained more than $4/b on 22 February, to more than $90/b.

Weakness persists in the WTI contract. Deliveries of Canadian crude through the Keystone pipeline system may undermine its rally, which owes more to technical forces than the fundamentals, say analysts. Rising gasoline prices in the US – which are now above $3.16/USG, says the Automobile Association of America – will also undermine demand. US crude inventories, at 345.9m barrels for the week ending 11 February, were up by 0.9m barrels.

The global outlook is for strong growth in 2011. The IEA says demand will rise by 1.6m b/d this year to 89.3m b/d. Opec also sees strong demand growth – led by non-OECD countries – but puts the figure at 87.3m b/d. Secretary- general, Abdalla El-Badri, says the world economy is growing along "two tracks".

Immediate geopolitical worries dominate market sentiment. Worries in Gulf states about domestic unrest has also affected the market. Libya's exports, of 1.2m b/d, are falling – and could be shut in. Countries affected by unrest account for around 4m b/d of output. Turmoil in Iran, which has sent two warships through the Suez Canal, ostensibly to dock off the coast of Syria, would raise worries about the Strait of Hormuz, through which 20% of global crude supplies pass.

The IEA says it may release oil from its stocks if the price surge continues. Opec's next meeting is scheduled for the summer, but some analysts expect an extraordinary meeting before then if Middle East unrest persists.

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