Price of Oil Climbing to $100 a Barrel
Seen Not Too Far

SARAH ABDULLAH / Arab News 30oct2007

JEDDAH — Quite simply, whether or not the world will soon witness oil topping the $100 a barrel mark has become the burning question on the minds of government leaders, commodity experts and consumers worldwide.

And with prime factors such as ongoing geopolitical tensions mounting between Turkey and Kurdish rebels in Northern Iraq, the fresh US sanctions on Iran and wild cards such as the rapidly approaching winter in the Northern Hemisphere and the extent of the slowdown of the US and global economies, seeing the price of oil hitting $100 a barrel is becoming more and more possible, a number of leading experts said.

US light sweet crude jumped to a record new high $93.20 a barrel yesterday.

Dr. Mohamed A, Ramady, visiting associate professor, finance and economy at the King Fahd University of Petroleum and Minerals (KFUPM), told Arab News that he believes that $100 a barrel is possible but will be short-lived. When asked if numbers even above $100 a barrel were likely, he said “not unless a war broke out in the Mideast region, but for now I am forecasting only temporary spikes in the oil price which I believe will be dealt with as a major objective on the agenda of next month’s third OPEC Summit to be held in Riyadh.”

To make matters even more interesting, the US Federal Reserve is set to decide in a two-day meeting today and tomorrow, whether or not it will yet again cut interest rates than the already 50 basis points seen at it’s last meeting just last month. The decision came as a measure to deal with the slumping US housing market and as a cushion in efforts of avoiding a recession. Some have speculated that they expect the Federal Reserve to go ahead with the cut of possibly 25 basis points or more.

However, Ramady disagreed, saying “you have to look at the point that the US Federal Reserve has already taken a huge cut so I don’t really see them cutting interests rates again because I think that they would also like to see the markets adjust themselves to the recent changes in the global economy.”

In a press statement release earlier this month, OPEC Secretary General Abdalla Salem Al-Badri said “OPEC is carefully watching developments in the oil market and has observed with concern the recent escalation in oil prices. While the organization does not favor oil prices at this level, it strongly believes that fundamentals are not supporting current high prices and that the market is very well supplied.”

He said the OECD commercial inventory which remains above five-year levels standing at 53.5 days, is a “comfortable” level. Prices were most likely being driven by market speculators, persistent refinery bottlenecks and seasonal maintenance work while vowing to raise oil production by 500,000 b/d beginning Nov.1, he added.

Al-Badri further said “OPEC will continue to monitor the global oil market and will respond to any supply disruption, so as to ensure the market remains well supplied during winter months.”

Venezuela’s Oil Minister Rafael Ramirez was quoted as saying that a possible topic of next month’s OPEC summit would be the creation of a basket of currencies to peg the price of oil to rather than keeping oil prices sold by the US dollar which is being blamed for destabilization in the global oil market.

“I don’t think this will happen,” Dr. John Sfakianakis, chief economist, Saudi British Bank (SABB), said. “Sometimes oil ministers and other leading officials suggest measures that could possibly remedy the current dilemma of high oil prices but, if you look at the fact, only recently several GCC countries were under speculation to unpeg their currencies from the US dollar, yet all of them, excluding Kuwait, decided not to do. So I don’t actually see OPEC going ahead with this type of plan,” he said.

Leading experts and analysts decide to take a “wait-and-see” position. But one thing we can all be sure of is that the wait for oil at $100 a barrel certainly isn’t going to be a long one.

Oil jumped to a record high yesterday as stormy weather disrupted supplies from giant exporter Mexico and the dollar wallowed near record lows.

Mexican state oil company Pemex has shut a fifth of the nation’s crude production and halted the bulk of exports as storms kept ships bottled at ports across the country, a top US supplier.

US crude rose 73 cents to $92.59 a barrel by 1:15 p.m. EDT (1715 GMT), after striking a record $93.20. London Brent traded up 88 cents to $89.57 a barrel after hitting an all-time high $90 a barrel.

Central banks also have poured billions of dollars into financial markets to help ease the credit crisis, and much of that money has been invested in energy, commodities and emerging markets.

“There’s huge amount of speculation from hedge funds and others, they are all focused on the $100 barrel mark,” said Frances Hudson of Standard Life Investments.

“If volatility decreases significantly, they’d stop playing.”

OPEC has shrugged off calls from importer nations to raise crude output, blaming politics and speculation — not a supply shortfall — for high prices.

“I haven’t any signal that there is any shortage of crude... I believe a big portion of the oil price today is related to geopolitics and fear factors, and we cannot solve it,” Qatari Oil Minister Abdullah Al-Attiyah said.

“Sometimes there is a shortage of oil products but not of crude.

Consumers and producers should invest more in refining. We don’t have a magic stick to solve this.”

source: 1nov2007

Oil Hits Record $96/Barrel

Price Seen Spiking to $100

Inquirer (Makati City Philippines) 2nov2007

SINGAPORE — The price of oil rose to a new record above US$96 a barrel on Thursday after a surprise drop in US crude stockpiles raised concerns about supplies for the coming winter demand. A further weakening of the US dollar as a result of the Federal Reserve’s move to cut interest rates by a quarter point and data showing strong US economic growth also contributed to the oil price spike.

Analysts said they didn’t see anything standing in the way of a run to US$100 per barrel after the Organization of Petroleum Exporting Countries (OPEC) continued to resist calls for more oil production. OPEC said the roaring market was beyond its control, with the cartel blaming speculation and politics for the surge in price.

A senior Asian Development Bank official Thursday said the cost of fuel in Asia was still manageable, but he warned that further rises in oil prices could pose a threat to the region’s economies, including the Philippines.

“The decline in US crude oil inventories has been a key driver of oil prices,” said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney.

Light, sweet crude for December delivery rose to as high as US$96.24 a barrel in electronic trading on the New York Mercantile Exchange by mid-afternoon in Singapore before dropping to US$95.59 a barrel.

Crude prices have reached inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, US$38 a barrel then would be worth US$96-$101 or more today.

Oil prices have surged more than 50 percent since the start of the year, and have risen about 18 percent in the past month alone on winter supply worries, speculative buying and a succession of record lows in the US dollar.

“We are stepping into an unknown area. Nobody wants to sell (given the fear of a) further rise,” broker Ken Hasegawa of Fimat Japan told Dow Jones Newswires.

Fall of oil supplies

In its weekly inventory report, the US Energy Information Administration (EIA) said oil supplies fell by 3.9 million barrels last week. Analysts surveyed by Dow Jones Newswires, on average, had expected an increase of 100,000 barrels.

“The US inventory report has reaffirmed the belief that market conditions are tightening and oil prices are ratcheting up higher on that basis,” Moore said.

Much of that decline in inventories was due to a big drop in crude supplies at a closely watched oil terminal in Cushing, Oklahoma.

Cushing oil supplies have been under pressure in recent months due to differences in the price between front-month oil contracts and those for delivery in future months. This price difference, or spread, has given storage tank owners a financial incentive to sell their oil, rather than hold it in inventory.

Analysts have also blamed falling Cushing supplies, in part, for the rally in which oil prices have jumped 35 percent since August.

The EIA also reported that refinery activity fell by 0.9 percentage point last week to 86.2 percent of capacity. Analysts had expected an increase of 0.5 percentage point.

Supplies of gasoline rose last week by 1.3 million barrels. Analysts expected a 400,000-barrel decrease.

And inventories of distillates, which include heating oil and diesel fuel, rose by only 800,000 barrels. Analysts had expected a 1-million barrel decrease.

Rate cut; GDP growth

The US Federal Reserve’s move to cut interest rates by a quarter point also supported prices. Interest rate cuts generally support oil prices because they tend to send the US dollar downward; the dollar is already at multiple-decade lows against major currencies.

The Fed’s second interest rate cut to stave off fears of inflation has added liquidity to financial markets, some of which has been plowed into oil futures because they offer a hedge against a weak dollar.

Even so, the economy of the world’s biggest energy consumer has shown surprising resilience to high oil prices, growing at a brisk clip in the third quarter.

US gross domestic product (GDP) expanded at a 3.9-percent annual rate last quarter, the quickest pace since the first quarter of 2006. Latest data also showed private employers also added 106,000 jobs in October, beating economists’ forecast of 60,000 new jobs.

No shortage, says OPEC

Despite record oil prices, OPEC turned a deaf ear to calls for an increase in oil production.

“The question is if there is any shortage in the supply. There is no . . . shortage in crude oil,” Qatar Oil Minister Abdullah al-Attiyah told reporters in Tokyo on Thursday.

“It’s market-driven and the market is out of our control,” he said, reiterating comments made earlier this week.

For its part, Iran’s acting oil minister said the OPEC was not expected to discuss raising output at informal talks in Riyadh in mid-November.

“I doubt that because there is enough oil in the market . . . Iran does not see a need for an output increase,” Iran’s Gholamhossein Nozari told Reuters, when asked if the OPEC would discuss increasing production in the Saudi capital.

Geopoliticals factors are likewise boosting prospects of an oil price of US$100 per barrel.

Iran warned the United States on Wednesday it would find itself in a “quagmire deeper than Iraq” if it attacked the Islamic state. Russia, however, has intensified efforts for a diplomatic solution to Tehran’s nuclear row with the West.

“It’s just a matter of time . . . Everything you see now are bullish factors, so there is no reason for you to sell at the moment,” Fimat Japan’s Hasegawa said.

Reports from Associated Press and Reuters

source: 1nov2007