Geopolitical tensions have increased in relation to Iran and there are potentials for disruption that have been factored into the prices. The more dramatic scenarios can be envisaged: a) Iran could withhold oil from the markets, b) we could see attacks by Iran to stop shipping through the Strait of Hormuz, and c) Iran could use Shia guerrilla influence on the south of Irak to sabotage production in Irak fields. The Middle East in not the only place of political tension oil related. This April Nigeria is holding elections and the corresponding tension between political parties will heighten. 2003 was the last time Nigeria held elections and 800 000 b/d capacity was shut for several weeks.

Weather and summer hurricanes could potentially affect refinery production in 2007. The consensus for this year forecast is of 13-17 named storms against a long-term average of 10. Last year we did not see any refinery shutdown weather related but this year could be different.

Supply and demand factors seem to predict some supply shortages. Year-on-year demand should grow in 2007 over 1.7m b/d (millions barrels per day). Whereas non-OPEC production is expected to grow by 800 k b/d (thousands barrels per day), we are still short of another 800k b/d that should be met by OPEC members. So quotas should be increased by the OPEC if we do not want to see supply shortages impinging on prices.

A few things to look at if we want to understand where will oil prices be heading.