AFP reported that the debt crisis, tension over Iran flagging growth and the northern hemisphere winter are disorientating oil markets.

The International Energy Agency revised down expected global demand for oil slightly by 70,000 barrels per day this year and by 20,000 barrels next year after unexpectedly low demand data in the third quarter from the United States, China and Japan. But the outlook is highly uncertain and some strong underlying upward risks for oil prices sit alongside substantial risks of sharp slowdown in the world economy.

The IEA said that the euro zone sovereign debt crisis hung over the market like the sword of Damocles for most of October and early November. The ever present threat of a far reaching financial collapse from the worsening quagmire in Greece and Italy generated a raft of daily headlines that injected a high level of trading volatility.

Market attention has shifted to Italy where a weak financial reform package has triggered a dangerous rise in 10 year government bonds. Oil markets are inextricably linked to the deterioration in the European debt situation given the impact on financial markets, the heightened risk of global recession and the corresponding potential loss of oil demand.

But a floor was being put under oil prices by the imminence of winter and demand for heating fuel in the northern hemisphere by a tightening of oil inventories and from ongoing political turmoil affecting Libya, Iran, Syria and Yemen.

The agency said that upward price momentum in recent days has centred on the tense situation over Iran's nuclear program triggering USD 2 to USD 3 per barrel rise in oil prices in early November.

Underlying fundamental demand for oil from members of the Organization of Petroleum Exporting Countries slightly exceeded OPEC output. Considering this and tightening OECD stocks, a fundamentals underpinning for stubbornly high prices is clear.

Libya had resumed production faster than had been expected. But it should be remembered that this year the US Gulf oil producing region had been spared hurricane interruptions of production and that the Arab winter could well prove as turbulent as the Arab spring and, not least, that the Iranian nuclear issue is again rising among market concerns.

(Sourced from AFP)