Oil prices jumped to a new trading record above $98 a barrel on Wednesday amid expectations of declining United States supplies. The weak dollar and the Organisation of the Petroleum Exporting Countries’s apparent reluctance to pump more crude into the market also boosted prices.
Light, sweet crude for December delivery was up 83 cents to $97,53 a barrel by afternoon in Europe after earlier reaching a record $98,62 in electronic trading on the New York Mercantile Exchange.
The contract hit a high of $97,10 on Tuesday before closing at $96,70 a barrel, a record settlement 66% higher than the close on the first trading day of the year.
That left crude prices within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.
In London, Brent crude rose 86 cents to $94,12 a barrel on the ICE Futures exchange. A number of North Sea oil platforms were evacuated on Tuesday ahead of expected severe weather, and BP said it expects to shut production on Thursday from its Valhall oil and gas field.
Traders remain worried about whether supplies will be adequate to meet demand for heating fuel in the approaching northern-hemisphere winter. News of an attack on Monday on an oil pipeline in Yemen added to those concerns.
“The oil market sentiment remains bullish … there is an overall upward trend toward the $100 level,” said Victor Shum, energy analyst with Purvin & Gertz in Singapore. “Meanwhile, we can expect extreme volatility where on the one hand some traders will take profit while others will buy back positions.”
Global Insight energy analyst Simon Wardell was even more unequivocal. “The run on $100 … [a barrel] now seems inevitable,” he said in a research note. “In the short term all eyes will be fixed on the US government’s Energy Information Administration [EIA] … inventory data.”
Those figures, to be released later on Wednesday, are expected to show crude supplies dropped last week. Analysts surveyed by Dow Jones Newswires predict, on average, that crude oil inventories fell by 1,6-million barrels.
“The price rise is really driven by expectations of drawdowns in crude oil and distillate stocks inventories in the US inventory report,” said Shum. “Some cold-weather reports out of the US and Europe serve as a reminder that winter is coming and that there are still supply concerns.”
On Tuesday, the US Department of Energy’s EIA said oil stocks in the countries of the Organisation for Economic Cooperation and Development are forecast to fall this winter, ending the year at the lowest level since January 2005.
In London, International Energy Agency head Nobuo Tanaka said he shared those concerns. “Stocks provide an important cushion between supply and demand,” he told reporters. “They add supply-side flexibility, reduce volatility and minimise the incentive for speculation.
“At current prices the market is signalling that stocks need to be higher — something that is in the power of producers to address. In the longer term, there is little doubt that both producers and consumers share the responsibility to ensure more investment in supply and greater effort to improve energy efficiency.”
German Economics Minister Michael Glos also expressed concern. “The dollar depreciation dampens the rise in oil prices for the euro area. However, one still has to expect that the rising oil price increases risks to the economy,” he said in a statement on Wednesday.
In comments to AP Television News, NM Fleishhacker AG analyst Christoph Schmidt put the blame on “rising demand in countries like China and India”. Additionally, he said, “no new oil is being found and this relation makes the price increase so strongly”.
According to the Paris-based International Energy Agency, consumers and governments globally are currently doing too little to improve energy-supply security and cut pollution. In its annual outlook for energy until 2030, the agency said the next 10 years are critical for governments globally to address these challenges as energy demand surges in the booming economies of China and India.
Continuing strong global oil demand and lower-than-expected output from countries outside Opec will put more reliance on supplies from Opec and global inventories, the US’s EIA said in its short-term outlook.
Any reduction in oil inventories is likely due to a suspension of output at Mexico’s state oil company Petroleos Mexicanos, a major crude exporter to the US, which temporarily shut its ports last week due to severe weather.
The weak US dollar, which fell to another new low against the euro on Wednesday, is also lifting oil prices. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.
Opec — supplier of about 40% of the globe’s crude — appeared unimpressed. In Vienna, PVM Oil Associates noted that — despite record prices — Opec “has not shown any intention of increasing supplies on top of the five-million-barrel-a-day hike which became effective at the beginning of this month.”
Analysts also expect the EIA to report on Wednesday that gasoline inventories rose by 200 000 barrels during the week ended November 2, while supplies of distillates, which include heating oil and diesel fuel, fell by 500 000 barrels.
Heating oil futures added 2,27 cents to $2,6305 a gallon (3,8 litres), while gasoline prices rose by 1,1 cents to $2,446 a gallon. Natural-gas futures slipped 3,1 cents to $7,832 per 1 000 cubic feet. — Sapa-AP
Associated Press writers Gillian Wong in Singapore, Jane Wardell in London and Matt Moore in Frankfurt contributed to this report