Crude oil prices surge to all-time high
Wednesday, October 6 2004 - 12:00 AM WIB
Crude oil for November delivery shot up as high as $50.73 a barrel in electronic trading in advance of the opening of the New York Mercantile Exchange where it had settled Monday at $49.91. Tuesday's price surpassed a previous intraday high of $50.47 a barrel set Sept. 28. Prices later pulled back, but remained above the $50 mark.
Oil prices are more than 60 percent higher than a year ago, but when adjusted for inflation, still remain around $30 below the level reached in 1981.
A record was also set on London's International Exchange where the price of Brent crude for November delivery opened at $46.56, up 37 cents, and climbed to a new high of $47.00 a barrel before receding slightly.
Analysts say prices are likely to remain in that region over the next few months due to fears of instability in Iraq and West Africa, surging demand in China and India and growing demand for low-sulfur crude.
"I would think that for the time being, the trading range will stay ... between $40-50 for New York prices," said Axel Busch, the chief correspondent for Energy Intelligence Group in London, which plots energy developments. "It could go higher if we have mayhem in Iraq or further terror incidents in Saudi Arabia."
The supply of distillate fuel, which includes heating oil and jet fuel, is also tight, raising concerns among traders because the home-heating season is just around the corner.
Busch said any pullback in prices to $35-40 a barrel depended on tapering off of demand, "new production into the market and new pipeline networks," as well as no major disruptions to production due to unrest.
Also Tuesday, Organization of Petroleum Exporting Countries president Purnomo Yusgiantoro called for more transparent and reliable data to track prices and counter rising speculation in the market.
"The current market shows a need for reliable oil statistics," Purnomo said in Bali, Indonesia. He had earlier said OPEC could not do anything to cool prices even after pledging to increase output.
Fereidun Fesharaki, head of U.S. energy consultancy FACTS Inc., cited China as an example, claiming that Beijing's lack of open inventory data has contributed significantly to the spike.
"There must be an obligation to report and an obligation to receive information," Fesharaki said.
The market remains edgy over Nigeria, where on-again, off-again talks between rebels and the government plague production in the Niger Delta - which churns out over 2 million barrels per day and is America's fifth largest source of crude.
Also of concern is daily output in the Gulf of Mexico, which stands at around 28 percent below normal at roughly 1.2 million barrels, according to the federal Minerals Management Service. More than 13 million barrels of oil production have been lost since Sept. 13, when Hurricane Ivan swept through the United States and the Caribbean, killing 115 and forcing oil companies to shut down.
A number of platforms were damaged and undersea inspections are being held up, further adding to the delays there.
The United States is the world's biggest consumer of oil, at about 25 percent of global supply.
But a larger, lingering worry among analysts is the amount of excess capacity, or supply buffer, which currently hovers around 1 percent above daily global consumption of 82 million barrels per day.
"If we get hit with a cold winter, supplies could get very tight," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Busch said that the "world is straining at its supply base."
Only Saudi Arabia is able to pump more, maybe up to 500,000 barrels extra a day, but because of its high sulfur content, "it's the wrong kind of oil," he said. "Nobody wants it."
Other factors weighing into the spike include:
- Fear over Russian supply after oil giant Yukos warned that output might suffer due to a multibillion dollar back-tax bill.
- Frequent attacks by insurgents in Iraq on pipelines.
- A recent presidential referendum in Venezuela, the world's fifth-largest producer.
"Everyday, it is either Nigeria, Iraq, or Russia, or the weather, so there is something ... where there is a confluence of events, then prices should go even beyond $50," said Victor Shum, an oil analyst at Texas-based energy consultants Pervin & Gertz in Singapore. (*)