CRUDE demand is weakening, yet markets are firm. Decoupling from the otherwise weak fundamentals, prices have surged in recent weeks, with Brent crude prices closing in at $120 a barrel, up sharply from around $90 a barrel in July, with both, Brent and US crude pace to post their third consecutive weekly gains. While I write these lines in the distant land Toronto, Brent September crude, was seen hovering this week at the highest intraday price level since early May. US September crude was also seen touching the highest intraday price since mid-May. Supply concerns appear supporting the crude markets. Markets are firming up – at the slightest hint. Prices rose Thursday as comments from German Chancellor Angela Merkel that appeared to back the European Central Bank's efforts to combat the eurozone crisis, feeding hopes for more economic stimulus from central banks. Escalating geopolitical tensions over Syria's civil conflict, the dispute over Iran's nuclear program, along with falling North Sea production and hopes that central banks will provide more stimulus, seem to have combined to push oil higher in recent weeks. Economic data pouring in is indicative of structural weakness. Separate reports showed US initial jobless claims rose last week, housing starts fell in July and the Philadelphia Federal Reserve's business activity index still in negative territory, indicating contraction, for the fourth straight month. And demand weakness is also in sight. On Friday, the International Energy Agency (IEA) said oil demand will rise more slowly than expected in China, Europe and the United States next year as economic growth falters. US crude oil demand too fell to its lowest in nearly four years in July as the weak US economy weighed on consumption, industry group American Petroleum Institute (API) said. Petroleum demand dropped 2.7 percent from a year earlier to 18.062 million barrels per day. This was the lowest amount of US oil consumption for any month since September 2008. Gasoline demand in the US too fell 3.8 percent in July to 8.624 million bpd. Consumption of the fuel was down 1.1 percent for the first seven months of the year, compared to the same period a year before. Chinese demand is also getting flat. China's imports of crude oil sank in July to a nine-month low as refineries cut output due to low demand. Apparent oil demand – net oil product imports plus refinery throughput – fell to 36.84 million MT or 9 million b/d in June, the lowest level since September last year, according to Platts' calculations last month. This was a 1.9 percent contraction year-on-year. However, the possibility that the weak data might spur the US Federal Reserve to provide stimulus has helped in lifting crude futures. Hopes of fiscal stimulus from China and Europe are also underpinning oil markets. The very likelihood of some sort of intervention to stimulate economies also seems supporting the market. Central Banks of the US and the eurozone have been hinting that monetary stimulus would be on the way should their economies weaken further. Oil markets are also being impacted - rather positively - on concern that growing tension in the Middle East will disrupt supplies. The growing rhetoric coming out of Israel is certainly helping underpin the market. Markets firmed up, as much as 1.4 percent last week, as Israel's Home Front Command planned to test its nationwide text-message system to alert the public of danger amid reports that the country was considering a strike against Iran. Israel's test would involve sending text-message warnings to Israelis on their mobile phones. It was also reported last week that Israeli Prime Minster Benjamin Netanyahu and Defense Minister Ehud Barak see the window closing within months for striking Iran in an effort to halt its nuclear program. Some of his recent comments have fuelled the debate in Israel about whether to go to war against Iran over its nuclear program. Some see it as defying US President Barack Obama plea to allow more time for international diplomacy. Israeli leaders are leaning toward a strike on Iran before US elections in November, the Haaretz daily reported Aug. 10. Gas masks are reportedly also being distributed in Tel Aviv. The Tel Aviv stock exchange is at a 3-week low. The Israeli shekel is its lowest value in nearly 15 months. Iraq and Afghanistan are unstable, with bombs exploding on a near daily basis. Kurdistan is thumbing its nose at Iraq's central government and signing its own oil contracts with oil majors. Iraq has responded by threatening them if they don't stop “misbehaving” in Kurdistan. Syria is in turmoil and the crisis there appears to be jumping across borders. There has been bloodshed on the border between Egypt and Israel. The regional war theatre is heating up. And all these troubles are adding a geopolitical risk premium to every barrel of oil. Some feel it could be between $10-$20/barrel. On the other hand, output of the four North Sea crudes that underpin Brent is to sink to a record low in September due to oilfield maintenance and natural decline. Output from 12 North Sea production streams is set to fall by about 17 percent. This anticipated closure is also weighing in on the market psyche. Rising prices are a cause of concern to Washington - on more than once count. While Washington seems concerned about its impact on domestic economy – especially in an election year, the Administration also did not want rising oil prices to create a windfall for Iran. Consequently, reports are pouring in that the White House is “dusting off old plans” for a potential release of oil reserves to dampen rising US gasoline prices and prevent high energy costs. US officials were reported collecting information from the market about potential needs and studying futures, production numbers and data on Iranian oil exports. However, President Barack Obama is reportedly faced with stiff resistance to the possibility of releasing emergency oil reserves, with key Asian allies saying there was no cause for action. The executive director of the International Energy Agency, Maria van der Hoeven, has been blunt in her assessment: “There is no reason for a release.” The IEA “bases actions on data and reality. The market is sufficiently supplied,” she told reporters after a speech in Houston. Key members of the IEA offered varied views, reflecting a divide between those who have tended to favor a more liberal use of the world's government-held stocks as a means to influence prices, and aid economic growth, and those who believe they should be strictly reserved for supply emergencies. And in the midst of all this – Tehran – seems to be enjoying the unexpected windfall- despite the odds!