Oil Prices fall as Pipeline Explosion News Denied

Saudi Arabia on March 2, denied an Iranian scare of an explosion in gas pipeline. The denial led to an increase in oil prices taking it to $108 a barrel. On March 2, benchmark crude up for April delivery was at $107.89, which shot by $1.77 and reached $108.84 a barrel in New York.

In London the Brent crude was at $124.74 per barrel, low by $1.46, on the ICE Futures exchange.

Before the Saudi Denial Crude had leaped to $110.55 on Thursday after there was a report from an unconfirmed Iranian source of an explosion in a pipeline; which Saudi officials denied later.

Last month the oil prices were near $96 amid apprehensions that Iran’s nuclear program policies might disrupt the oil supplies through the Strait of Hormuz. On one hand the US and Europe are imposing tough sanctions on Iran, while on the other hand, Middle East countries are threatening to cut oil supplies, by halting oil tankers that pass through the strait.

Israel is planning to test a new ballistic missile soon; the Israeli Prime Minister is also scheduled to meet the US President to discuss the Iranian issue.

Recently Commerzbank, Frankfurt reported that the crisis in Iran is one of the prime causes to trigger off the oil prices early this year. Concerns regarding supply disruption, the report added might persist for some more time, thereby giving way to a long standing risk premium on oil prices.

Adding further to thy increase in oil prices is the recovering US economy, with investors looking at crude optimistically, and also due to the lurking Iran fear. On Thursday, the government said that application pertaining to unemployment benefits have sized down, with a parallel rise in spending on construction of residential properties. Retail sales have also strengthened in February.

While few analysts feel pessimist about the gasoline prices, favoring economic recovery, others are optimistic about it too.

Oil Price Rise – Economic Perspective

Oil price rise can be for good or bad. The current rallying of prices is indeed bad. Dealing with such price rises would rather be difficult for the governments and banks.

At any given point of time, using any sort of price marker, the oil news is just not good for a consumer. Since 2008, Brent crude touched highest levels to reach $130 per barrel overnight. US crude was at $110 per barrel, before it came down to $108. If these price rises were due to shortage of supply, or an increase in demand, it would have meant an upswing economical motion.

But the present case is vice versa, it is the short supply to the not so increased demands yet that is controlling the situation. Iran’s nuclear ambitions along with a denied Saudi explosion of pipeline have aggravated issues.

If the price rise would have been an outcome of increased demands, it wouldn’t have stifled growth, because high prices could have been matched by raising the labor prices. A supply shock affects the disposable earnings just like taxes do. It leads to a reduced demand, thereby weakening the economy.

The problem with oil markets presently is that in number of countries there are events that have a huge impact on supply and demand, thereby triggering instant reactions from the traders, giving way to speculations and volatility.

The recent pipeline story for instance points towards an obvious nervousness sin the oil markets, or anything that relates to the supply issues.

The US has been restraining Asian economies especially to reduce oil imports from Iran. They are of the opinion that other oil producers in the world are fairly placed to take care of any shortfalls. Some analysts also feel that with change in weather conditions, and with summers approaching, oil prices might soon receive some checks.

Wall Street Slips, Oil Doesn’t

Stocks in US edged remarkably low on March 2, 2012. The S&P 500 along with Nasdaq however maintained pace, exhibiting a positive performance for eight out of last nine weeks. Investors kept a close eye on oil prices too, which have been on a rising spree since February. Crude oil in US witnessed a fall by 2%, and reached $107 a barrel after it hit a ten month high of $110 per barrel. This fall came as Saudi Arabia eased concerns over pipeline explosion. This news had pushed Brent to remarkably high levels since 2008. The news about the pipeline fire came from media in Iran.

The recovering economy might get damaged by steep oil and gasoline prices, since consumers will be forced to cut on their spending. The director of equities, Kayne Anderson Rudnick in LA California – Doug Foreman said that in case there is a noteworthy event in the Middle East with Iran, there might become a factor for change over a short span of time.

The US President’s aides and that of the Israeli Prime Minister are seeking a middle way out to the differences. The heart of the concern primarily is that Israel might attack Iran’s nuclear sites. This has resultantly led to a spike in the prices of oil remarkably. Both the leaders are scheduled to meet on March 5.

The fear that renewed tensions in the West with Iran might lead to a disrupted supply of crude oil through the Hormuz Strait, thereby spiking off the oil prices further. Since the beginning of 2012, oil prices have swelled up by about 15 percent.

The increase in crude oil demands especially from China and other such emerging economies are among other stable pressures on oil prices. The US President, Obama has at various points recognized this concern too.