(EnergyAsia, December 6 2011, Tuesday) — Oil prices continued to edge up as the combined push of rising global demand and geopolitical tensions in the Middle East and Africa over-rode the bearish pull of the rapidly deteriorating state of the US and European economies.

North Sea Brent has held up stubbornly around US$110 a barrel while US WTI has structurally been lifted by a Canadian pipeline operator’s decision to divert crude oil flows away from the congested storage terminals at Cushing, Oklahoma. News of Encana’s bold move helped pare down Brent’s premium over WTI from an absurd record high of over US$28 in mid-October to less than US$10 a month later.

Still, Brent, in demand globally, looks likely to continue to command a premium over the domestically-oriented WTI.

Both the International Energy Agency (IEA) and OPEC have held to their forecasts that global oil demand will continue to reach record highs this and next year despite the seemingly never-ending flow of bearish news about the state of the Western economies.

For now, the economies of Asia, the Middle East, Africa and Latin America will continue to grow, boosting their combined demand for energy to more than offset the declines in the US and Europe.

Of immediate and graver concerns to everyone is the deteriorating geopolitical situation in the Middle East.

Reports of worsening violence and military skirmishes continue to dominate Saudi Arabia, Kuwait, Egypt, Syria, Libya, Iraq and Iran. As the US and Europe step up trade and economic sanctions against Iran for pursuing its nuclear programme, Israel is said to be preparing to attack the Islamic regime.

In the event of an Israel-Iran war, bond trader PIMCO has sketched out four scenarios, with oil surging to, and staying above, US$120 a barrel as its best case, and the “doomsday” outcome of an all-out war involving many countries. Even in the best-case scenario with oil prolonged at US$120 or more, PIMCO expects the conflict to sink the world economy.

The Iranian government has warned that the price of crude will surge to US$250 a barrel if the West succeeds in blocking its oil exports, with devastating consequences for the world economy.