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Tuesday, 02 December, 2008, 02:20 GMT | more >>

Crude futures shatter $88 barrier



By Upstream staff 

Oil thundered to a record above $88 a barrel today, extending a $9 rally since last week driven by tight supplies, strong demand and growing tensions in northern Iraq.

Oil is closing in on the inflation-adjusted high of $90.46 seen in 1980, the year after the Iranian revolution and at the start of the Iran-Iraq war. Prices this year have averaged $67 a barrel.

The administration of US President George W. Bush said prices were now too high for the world's top oil consumer, which is already facing economic pressure from the meltdown in the subprime mortgage market.

"There is no doubt that energy prices are too high. They disproportionately hurt low-income families that have to spend so much of their money on energy," said White House press secretary Dana Perino.

"We watch it closely, we're very concerned."

US crude rose 66 cents to $86.79 a barrel by 1750 GMT, easing off the earlier record high of $88.20. London Brent was up $1.22 at $83.97 a barrel.

Opec said it was worried by the record run but said it was due to rampant speculation by big money investors, not any physical shortage of crude supply.

"While the organisation does not favour oil prices at this level, it strongly believes that fundamentals are not supporting current high prices and that the market is very well supplied," it said in a statement.

Investors themselves have cited rising tensions between Turkey and Kurdish separatists in northern Iraq, sturdy world energy demand growth, tight inventories in consumer nations heading into winter and unprecedented weakness in the US dollar.

"There's a lot of risk there and that is being reflected in the price," fund manager David Dugdale of MFC Global Investment Management told Reuters.

"This market has it all right now," said Peter Beutel, president of energy trading consultant Cameron Hanover. "It has supply concerns, projected increases in demand, dollar weakness, momentum and political fears."

Yesterday the Turkish Cabinet asked parliament for permission to launch an attack on the separatists.

Iraqi oil exports via Turkey have been sporadic since 2003, although Turkey is also now a major conduit for Caspian oil exports to the Mediterranean.

But some analysts leaned toward Opec's view and argued the easing of a global credit crunch was a bigger factor driving oil.

Moves by the US Federal Reserve to cut interest rates and add billions of dollars of temporary reserves to the banking system have added liquidity that is finding its way into oil, seen by some as a one-way bet.

"We suspect massive long-side commitment by sidelined money has had more to do with it," said Edward Meir of MF Global.

Oil has climbed from below $70 in mid-August and surged 10% since 9 October. The rally has also been aided by fund buying as a hedge against a weaker dollar.

"The market fundamentals are in balance. There is too much money coming into the market," Indonesia's Opec governor Maizar Rahman told Reuters.

Opec officials said they had heard no discussion within the organisation about raising output beyond the 500,000 barrels per day agreed in September, which takes effect on 1 November.

Oil prices have more than quadrupled since 2002 and climbed 43% since the start of 2007.

"Barring a massive sell-off, the path of least resistance seems to be higher still, although like many others out there, we are hard-pressed to justify such high valuations," MF Global's Meir said.

"Still, we learned long - and many dollars - ago that it is best not to take on a speeding freight train."

Tuesday, 16 October, 2007, 08:20 GMT  | last updated: Wednesday, 17 October, 2007, 05:46 GMT

On the boil: the crude trading pit
 
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