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Lack of spare capacity in oil production and refining are keeping prices high

 prices surged to a new record of over $75.00 a barrel on Tuesday closing at a price of $75.17. In Europe,  rose to $74.59. In less than a month, prices have risen $10, back to the record highs set after Hurricane Katrina caused refineries to shut down in August 2005. Prices are also 42% higher than a year ago.

Political instability in oil-producing countries is seen as a major cause of this rise. The standoff over 's nuclear program has led to strong words being exchanged and a possibility of sanctions being imposed on Iran, the world's fourth largest producer of oil. Violence in  earlier this year has led to a drop the country's production by almost a quarter.  Nigeria is Africa's largest oil exporter and is also a major supplier of gasoline-rich crude oil to the United States, where demand is set to increase as the "driving season" begins next month. 

Edmund Daukoru, the president of OPEC and Nigerian oil minister said on Tuesday, "The current shoot up we are experiencing is as a result of the Iran problems and it's not helped by the flare up between Israel and the Palestinians. But mainly it's the threatening statements being made against Iran as a result of its nuclear program."