Oil Price Analysis

RISING DEMAND

Global economic expansion is driving what the International Energy Agency says is the biggest increase in oil demand for 24 years.

There is higher than expected demand in industrialised countries and China's rapidly expanding economy has created a huge demand boost. Chinese demand is up 20% over the past year. Traders are betting this rapid growth will continue for several years.

US demand has risen because of strengthening economic recovery and greater need for higher grade crude oil suitable for processing into petrol (gasoline) for the fuel-hungry Sport Utility Vehicles (SUVs) popular with US drivers.

Among suppliers only Saudi Arabia has significant spare capacity that it can make available to the market.

VIOLENCE IN THE MIDDLE EAST

The world's major oil consumers remain dependent on the Middle East for their oil. Recent violence in Iraq and Saudi Arabia has again raised fears about an interruption to supplies.

Iraqi exports have been cut by sabotage attacks on oil facilities. The reduction in supplies has been fairly modest but it has caused some doubts about Iraq's longer term prospects of becoming a large and stable oil exporter.

Attacks on foreign workers in Saudi Arabia by Al-Qaeda-inspired militants have also increased tensions.

Any substantial attack on Saudi oil facilities would be a major event for world oil markets. The country is the world's biggest oil producer and, by far, the biggest exporter.

OTHER POLITICAL TENSION

Analysts also view political tension in non-Middle East states Nigeria and Venezuela as having the potential to disrupt exports and drive up world prices.

And there have been worries that a dispute between Russia's government