The surge in oil prices on Tuesday night to $68.09 a barrel on rumours that a conflict had broken out between Iran and the US underlined how sensitive the market is to geopolitical events.

An abrupt $5 spike in prices was last seen in 1991 at the time of the first Gulf war.

Once the rumours were denied, the price settled and it was trading at about $64 a barrel. This was still up on the day and is 28 per cent above the eight-month low of $49.90 touched in late January.

Although the rise has coincided with the ratcheting up of tensions between Iran and the west, it is not the only reason for higher oil prices.

Demand in both the developed and developing world is increasing at a faster rate than last year and the production cuts by the Organisation of the Petroleum Exporting Countries that came into effect late last year and in February have tightened the balance between supply and demand.

This trend was highlighted by the latest weekly data showing that inventories of US crude and petroleum products fell. Although US crude stockpiles have remained steady since the Opec cut began on February 1, US petrol stockpiles in contrast are down about 8 per cent and are about 5 per cent below their level a year ago.

The fall in petrol inventories reflects the shutdown of 7.5 per cent of US refinery capacity, meaning refiners are able to produce less petrol than normal at a time of year when they produce more in the lead-up to the US summer driving season.

Frédéric Lasserre, head of commodities research at Société Générale, estimates an average of 1.26m barrels a day of petrol and distillate product output was lost in the first quarter.

There has been plenty of attention on the accident at BP’s Texas City 460,000 b/d refinery, which is operating at 55 per cent capacity almost two years after the fatal explosion.

But other US refineries have also been plagued by accidents, including Valero’s 170,000 b/d Sunray refinery in Texas and 190,000 b/d Delaware plant.

“There has been an unusual amount of fires or accidents as well as longer than normal maintenance work,” said Mr Lasserre. “Refineries have delayed a lot of major mainten- ance work over the past four years because of strong demand for products and high refinery margins but they knew that could not continue like that, otherwise it could start to cause long-term damage to the plant.”

The US petrol market is important, given that US consumption accounts for about 10 per cent of global oil demand, more than the entire demand from China. Oil traders turn their attention to the gasoline market at this time of year and for the last four years there have been supply concerns.

Lower inventories and higher demand have pushed US benchmark gasoline futures up to eight-month highs.

The Nymex April gasoline blendstock for oxygen blending, also known as RBOB, futures contract yesterday hit an intraday high of $2.1143 a gallon, its highest level since August. This represented an increase of about 53 per cent from the $1.3351 price touched on January 18, the lowest level since the RBOB contract was introduced two years ago.

With petrol prices rising at almost double the rate of the underlying crude price, refiner margins have fattened.

A refiner can sell a barrel of RBOB gasoline for about $85: a profit of about $21 compared with the crude price.

Although the current margin has not yet reached the $30 plus level of last May when crude and petroleum product prices rose to record highs, the margins are up tenfold from their levels in late November.

This underscores the volatile nature of refiner margins. However, high prices should stimulate increased petroleum product output. “I think the refinery issue is a temporary one because we are going to see more gasoline produced by refiners and that should ease any fears about tightness coming into the driving season,” said Goran Trapp, director of commodities at Morgan Stanley.

Mr Trapp said the nervousness surrounding the stand-off between Iran and the West had made people nervous about short selling oil. “The fact that you have people unwilling to go short is enough to send prices higher,” he said.

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