ANALYSIS: With the price of oil reaching record levels at $91.86 a barrel, The Media Line (TML) takes a look at some of the underlying reasons for the pricing.
Much of the world’s known oil reserves are located in the Middle East’s Gulf region and its production in controlled by the Organization of the Petroleum Exporting Countries (OPEC).
On previous occasions when the oil price has risen, OPEC has responded by increasing production, hence putting more oil on the market and lowering the price. However, this time one of the reasons for the price hike is the standoff between the U.S. and Iran over Iran’s alleged nuclear weapons program.
The price is being affected twofold by this crisis: on the one hand the regional tension is creating concern about the steady supply of oil from the Gulf, while on the other hand Iran is reluctant to increase the quota for other OPEC nations by allowing them to pump up more oil in order to lower the price, according to TML’s financial analyst.
Another regional crisis affecting the price is the tension between Turkey and Kurdish fighters along the border with Iraq, which threatens to disrupt oil supply from the rich oilfields of northern Iraq that is being transported through a pipeline in Turkey.
Turkey’s threat of a large-scale ground invasion into Kurdish-dominated Northern Iraq would destabilize a region that as been one of the few success stories of the U.S.’s military presence in Iraq.
Also pushing up the price is the fact that this is the time of the year when oil companies stock up on their reserves for the winter season.
It should also be noted that there in increasing competition over the oil that is for sale, with China leading the pack of new economies with a steadily growing demand for more oil, said TML’s financial analyst.