Crude prices gyrated within a dollar or two of $70 a barrel last week as weaker equity prices and sluggish economies trumped unrest in lran and damaging insurgent attacks in Nigeria. There seems to be a growing sentiment that hints of an economic recovery someday have already been priced into the oil market, which has doubled in the last six months, and that it will take either evidence of substantially increased demand or serious reductions in supply before the market goes higher.

The week was marked by continuing insurgent attacks in Nigeria, the most embarrassing of which occurred during the visit of Russian President Medvedev who was there to sign an important natural gas agreement. The insurgents billed the attack, which did considerable damage to lines feeding Shell’s Bonny export terminal, as a warning of what awaits the Russians if they invest in the country without treating the people of the oil producing regions fairly. Many traders feel that the Saudis now have so much excess production capacity that declining Nigerian production will not be missed – for the time being.

At week’s end, the overt political turmoil in Iran over the controversial reelection of President Ahmadinejad seems to be subsiding without noticeable impact on oil production or oil prices. During the week Tehran returned to blaming the US and Britain for the continued demonstrations. The oil industry in Iran has been coddled by the government, reducing the chances of any protest strikes by oil workers reducing production. For the time being, improved relations with the US and the EU and prospects for increased western investment seem to be the main casualties of the troubles.

This week is likely to see the long-awaited award of contracts to foreign oil companies to join in the exploitation of Iraqi oil. Many remain skeptical that these contracts will be implemented in the foreseeable future, given the lack of any basic political agreement on the distribution of oil money and the increased violence that is already accompanying the pullback of US forces.

Last week was marked by the now routine warnings that unless investment in oil production is stepped up markedly there will be serious supply shortages during the next few years. The IEA in particular noted that almost any world economic growth that increases the demand for oil, even if it is delayed for a year or two, is likely to cause a supply crunch by 2014. For a host of reasons, such shortages are likely to appear sooner than 2014, probably much sooner.