Oil hit a new record near $120 a barrel on Monday, boosted by a string of bullish factors that include a United Kingdom refinery strike and disruptions to Nigeria’s output that highlight the market’s anxieties over threats to supply.
Prices held firm below earlier highs, despite a rally in the US dollar versus the euro and yen, which reflected growing expectations that the United States Federal Reserve may not cut interest rates this week.
US light crude for June delivery was up 28 cents at $118,80 a barrel by 10.55am GMT, after a lifetime high of $119,93. Prices are up almost 25% since the start of the year.
London Brent crude was up 6 cents to $116,40.
”The Federal Reserve will have a chance to bolster the dollar if it decides to hold the line on further rate increases,” Edward Meir, analyst with broker MF Global, said in a research note. ”Both these developments could possibly induce a correction in energy prices later in the week, but for now the trend appears higher still.”
Crude prices have surged more than fivefold since 2002 as global supplies struggle to keep pace with rising demand in emerging economies, such as China.
The Organisation of the Petroleum Exporting Countries (Opec), that produces more than a third of the world’s oil, has refused to pump more, saying the market is adequately supplied.
OPEC president Chakib Khelil blamed the fall in the US dollar for high prices and did not rule out prices rising to $200 a barrel.
”Without geopolitical problems and the fall in the dollar, the prices of oil would not be at this level,” he was quoted saying in Algerian government newspaper El Moudhajid.
A fall in the US dollar has played a big part in oil’s surge, boosting the value of commodities priced in the US currency.
Gold, for example, hit a record high of more than $1 000 an ounce on March 17. But gold is now more than 13% below its peak as investors wait to see the direction of US interest rates.
Investors are now focused on the Federal Reserve’s interest rate setting meeting, which starts on Tuesday.
Financial markets had expected a cut in interest rates to help revive the flagging US economy, but now some investors believe the Fed could signal its rate cutting is over.
The 700 000-barrel-per-day (bpd) Forties North Sea crude oil pipeline remained closed on Monday due to a strike at the neighbouring 210 000 bpd Grangemouth refinery after the collapse of talks over pensions.
Ineos, the owner of the Grangemouth refinery, expects striking employees to return to work on Tuesday. BP has said the Forties pipeline could then be back in operation within 24 hours but might take a few more days to get back to full flow.
In Nigeria, unidentified gunmen killed five policemen and seized several weapons in a raid on a police station in the oil-rich southern Nigerian state of Rivers on Sunday..
Last week a strike and attacks by rebels forced Nigeria’s two largest oil firms, Exxon Mobil and Royal Dutch Shell, to shut some 369 000 bpd of production. – Reuters