Oil Prices, Driven By Demand, Hit Record High
Oil prices, driven by demand, hit record high
Crude hovers near $60 a barrel amid gas-supply fears
http://www.msnbc.msn.com/id/5612507/
Updated: 6:50 p.m. ET June 20, 2005
NEW YORK - Just as the peak summer driving season moves into high gear, crude oil prices continued to soar Monday, touching a new record high near $60 a barrel.
Despite assurances by the Organization of Petroleum Exporting Countries just last week that it would raise its oil production target by half a million barrels per day, energy analysts remain concerned that demand for gasoline is continuing to outstrip supply and that U.S. refineries may be unable to cope.
OPEC's president said Monday he would consult other member states about releasing an additional 500,000 barrels per day as early as this week.
“We have been expecting prices to come down for a while but this is clearly not the case," said Deborah White, energy analyst with Barclays Capital in Paris.
"The rally is definitely sustained by gasoline demand in the United States posting a 3 percent yearly growth, which is seen as extremely strong," she said. "People are trying to push prices through $60."
The kidnapping last week of six oil workers, including two Germans, in OPEC-member Nigeria also contributed to the momentum.
Crude oil for July delivery touched an intraday record of $59.52 a barrel in afternoon trading on the New York Mercantile Exchange before dropping back to close at $59.37, up 90 cents or 1.5 percent for the session.
U.S. gasoline prices average about $2.13 a gallon, up more than 40 percent over the past two years. But government data released last week showed that demand is up almost 3 percent from a year ago — a growth rate that surprised many analysts.
On Friday, crude rose $1.89 a barrel, also setting an intraday record.
While soaring jet fuel costs have been a major problem for the airline industry, higher energy prices have not taken as much of a toll on the broader economy as analysts previously had feared. In the first three months of the year, the U.S. economy grew at a 3.5 percent annual rate, according to the Commerce Department, slightly slower than the 4.5 percent pace a year earlier.
Oil broker Mike Fitzpatrick at Fimat USA in New York said any further action by OPEC this week may backfire. “If you add that additional half million barrels, people are going to be talking about OPEC having (production) capacity constraints,” he said.
Still, “it looks like we might have difficulty holding these levels. You’re seeing a great deal of reluctance among buyers to pay these higher prices,” he said.
Oil workers in Norway, the world’s third-largest exporter, could begin a strike as soon as early Wednesday in a salary dispute that threatens to cut one-third of the country’s daily output of 3 million barrels.
While oil prices are more than 50 percent higher than a year ago, they are still well below the inflation-adjusted high of more than $90 a barrel set in 1980.
“Bulls believe the only thing that can cool the market is an erosion in demand, but so far there are no signs of this,” said Energyintel analyst Matt Piotrowski. “They also focus on OPEC’s recent meeting as reinforcing the belief that the organization cannot cool prices.”
OPEC failed to soothe the market last week when it agreed to raise its daily output quota to 28 million barrels because its members already had been unofficially exceeding that level.
Including Iraq, which is not bound by the 11-member cartel’s quota system, OPEC is pumping close to 30 million barrels a day, or about 35 percent of global demand.
Analysts said unlike the record prices last year, which were driven largely by concern over geopolitical events in oil-producing countries such as Nigeria, Saudi Arabia, Iraq and Venezuela, this year’s trend has more to do with speculative buying, continued supply fears and limited excess production capacity.
“This year we’ve had a confluence of factors driving up this rally: First, more hedge funds are allocating money to the red-hot oil markets; second, demand is outstripping supply; and third, capacity is tight in refineries and OPEC production facilities,” said Victor Shum, energy analyst at Texas-based Purvin & Getz.
“The oil market is prone to price spikes because of capacity tightness, and this attracts the speculators, who tend to buy on momentum,” Shum said.
Analysts also said summer demand for distillates — gasoline for vacationing Americans and diesel for generators of small businesses in China when power shortages occur — keep the market on edge.
“We saw last week’s expectation being built that U.S. refineries would struggle to meet the demand of the driving season. This is likely to provide support for the coming week,” said ANZ Bank energy analyst Daniel Hynes in Melbourne, Australia.
The Associated Press and Reuters contributed to this report.
