LONDON – Oil prices stabilized Thursday in a fresh sign that world markets were overcoming concerns that Iraq might halt its crude oil shipments to countries that support Israel.
However, fears that Israel's offensive against the Palestinians could further destabilize the Middle East are still keeping crude prices well above levels justified by demand for oil, analysts said.
OPEC Secretary-general Ali Rodriguez echoed that view, saying the Organization of Petroleum Exporting Countries has no plans for now to increase crude oil output. Rodriguez told the British Broadcasting Corp. in Dubai that the recent spike in oil prices was the result of speculation and "political uncertainties" rather than any change in supply or demand.
"We [OPEC] can't increase supply if demand is as low as it is now," he said. "If we increase production, we could face a collapse in oil prices."
OPEC pumps about a third of the world's crude.
May contracts of light, sweet U.S. crude were 9 cents higher at $27.65 a barrel in trading Thursday on the New York Mercantile Exchange. The NYMEX price for May contracts fell 15 cents on Wednesday.
In London, contracts of North Sea Brent for May delivery rose 6 cents to $27.33 on the International Petroleum Exchange, after closing 39 cents lower on Wednesday.
Crude futures surged to six-month highs on Tuesday, after Iraqi Foreign Minister Naji Sabri declared in Kuala Lumpur, Malaysia, that Arab countries have the right to coordinate their policies to put pressure on Israel and its allies. The threat was clearly directed at the United States, Israel's main benefactor.
Iran's Foreign Minister Kamal Kharrazi added that such a boycott could work if it had backing from many oil producers.
Ali Tahghighi, an oil analyst at Barclays Capital, dismissed the idea that such an embargo could be effective.
"Anybody who is really serious about an embargo would have to have the Kuwaitis and the Saudis on board, and the indications from them are that they're not even thinking about such a thing," he said.
Saudi Arabia is the world's largest producer and exporter of oil and the key member of OPEC.
The European Union's energy commissioner, Loyola de Palacio, said that OPEC officials had assured her they would not seek to use the threat of an oil boycott to pressure Israel and its allies.
"They do not want oil to be used as a weapon in Israeli-Palestinian conflict," she said. "They feel that oil isn't the right instrument to be used in this area. They told me this absolutely clearly."
Tahghighi said he expected prices to "consolidate" at around their current levels, barring a marked escalation in tensions in the Middle East — home to two-thirds of the world's proven oil reserves. He noted that Egypt's decision Wednesday to scale back its ties with Israel caused prices to rise somewhat from levels seen earlier in the day.
As of the close of business Wednesday, U.S. crude futures had surged by 35 percent since Feb. 1. Brent futures rose by 36 percent during the same period.
The increase in prices is even steeper if measured from Nov. 19, when crude futures bottomed out following the Sept. 11 terror attacks. U.S. front-month futures for light, sweet crude ballooned from an intraday low of $16.70 a barrel on Nov. 19 to a high on Wednesday of $27.68 — a blistering growth rate of 66 percent in less than five months.
Costlier crude is filtering through to prices at the pump. Leo Drollas, chief economist at the Center for Global Energy Studies, estimates that the U.S. retail price for unleaded gasoline was 20 percent higher on March 21 than it was on average in February.