UPI Energy Watch

World events cause oil prices to spike

Benazir Bhutto's assassination, fighting in northern Iraq and storms in Australia are behind surging oil prices. The past several days have seen oil prices again nearing $100 a barrel, and analysts expect gas prices will soon follow suit, The San Francisco Chronicle reports.

The national average for a gallon of regular hit $3 again at the end of last week. Never before have gasoline prices been this high at this time of year, the paper said.

"The fact that gasoline is so expensive now, when it's typically the low point of the market, is very troubling," Sean Comey, spokesman for AAA of Northern California, told the paper. "We're starting the year at a very high level."

Gas prices in the United States are being driven by the market for crude oil. The price of a barrel of crude peaked at $98.18 in November and then dipped after Thanksgiving. Now prices are rising again, and though the price of crude ended last week down 51 cents, it was up $2.80 for the week and was up again Monday.

Turmoil in the Middle East is second only to growing demand in developing countries as the reason for high oil prices. Bhutto's death may push back Pakistan's January elections, destabilizing the country. Last week Turkey's military campaign against Kurdish rebels inside northern Iraq had a similar effect. And storms on the coast of Australia have temporarily decreased refinery capacity, the paper said.

"Recent events in the Middle East seem to have ginned up anxiety in the markets, and even though it hasn't affected supply, it's worse this week than last week," Comey told the paper.

Angola will see new oil exploration following Sonangol's acquisitions

Angola's Sonangol is set to acquire a 49.9-percent stake in Millennium Angola, part of the Millennium BCP group, and a 25-percent stake in the Fomento Bank, part of the BPI group.

Sonangol board Chairman Manuel Vicente told Expresso, a local newspaper, that Angola's state energy company will also join forces with the Espirito Santo Bank to invest in new oil-exploration projects in Brazil.

Sonangol is also seeking to acquire a stake in BES Angola. The possible BES-Sonangol joint venture could also involve the BES holding company Escom entering offshore oil exploration ventures in Angola.

Oil prices are not expected to drop in the New Year

Nariman Behravesh, chief economist for Global Insight in Lexington, Mass., doesn't expect much relief from high crude oil prices during the next year. He does, however, suggest that weakened global economic growth in 2008 may dampen oil-price inflation from 8 percent in 2007 to 5.5 percent, purchasing.com reported.

The U.S. Department of Energy's Energy Information Administration said in its short-term forecast that monthly West Texas Intermediate prices are expected to exceed $80 a barrel during the next year and projects an annual average of $85 a barrel.

Economists at BMO Capital Markets in Toronto project that a barrel of West Texas Intermediate will remain at high levels and cost an average $76 in 2008, a 5.5-percent increase from the $72 average for 2007.

The Global Insight projection is less bullish than these forecasts, but Behravesh admits that's because of "the unknown factor in oil (being) the role of speculation."

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Closing oil prices, Dec. 31, 3 p.m. London

Brent crude oil: $95.72

West Texas Intermediate crude oil: $97.40

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(e-mail: energy@upi.com)