Oil $104 per Barrel
Prices Surge Higher After the
a Surprise Drop in Supplies
JOHN WILEN / AP 5mar2008
Does the Peak Oil "Myth" Just Fall Down?
NEW YORK — Oil surged Wednesday, rising a remarkable $5 a barrel to a new record over $104 after the government reported a surprise drop in crude oil stockpiles and OPEC held production levels steady. Most analysts had expected the Energy Department's Energy Information Administration to report oil supplies rose last week for the eighth straight time. Instead, they fell by 3.1 million barrels.
In Vienna, meanwhile, the Organization of Petroleum Exporting Countries said it would hold production levels steady, at least for now.
The EIA report and OPEC announcement fed a new frenzy of investing in oil futures, which have risen to new inflation-adjusted records this week as the falling dollar drew new investors to the market.
Light, sweet crude for April delivery jumped $5 to settle at a record $104.52 a barrel on the New York Mercantile Exchange. Shortly after the Nymex closed, oil briefly rose to $104.95, a new trading record. Earlier this week, oil prices broke the previous inflation-adjusted price record of $103.76, set in 1980 during the Iran hostage crisis.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.
At the pump, meanwhile, gas prices rose a cent to a national average of $3.178 a gallon, according to AAA and the Oil Price Information Service. Gas prices have been following oil's recent rally, and are 69 cents higher than a year ago. Many analysts expect prices to rise to near $4 a gallon this spring and summer as driving demand picks up.
While investors chose Wednesday to focus on last week's decline in oil supplies, analysts noted that oil inventories are at historic highs. Meanwhile, demand for gasoline is falling, and several forecasters have cut their oil demand growth predictions for this year.
"There are some very disturbing things in this report on the demand side," said Andrew Lebow, senior vice president at MF Global Inc. in New York.
That suggests oil's sharp jump Wednesday was also partly driven by the dollar, which fell to a new low against the euro.
"There's an ongoing stampede to be a part of the crude oil rally," said Tim Evans, an analyst at Citigroup Inc., in New York.
Many analysts believe oil's rally will be short-lived. Falling demand for overall petroleum products, which was down 3.4 percent over the last four weeks compared to the same time last year, suggest prices could drop steeply once the dollar-driven oil investment frenzy runs out of steam, analysts said.
OPEC ministers cited falling demand in announcing their decision to hold production steady. Gasoline demand is off about 1 percent over the last six weeks compared to the same period last year, according to EIA data. At the same time, gasoline supplies rose last week to a 15-year high, Evans said.
"Clearly, refineries have enough crude oil to produce an abundance of gasoline," Evans said.
OPEC did pledge to keep a close eye on oil supply and demand, and said it could change its output levels quickly if needed.
Other aspects of the EIA's inventory report were roughly in line with expectations. Gasoline supplies grew by 1.7 million barrels last week, more than the 900,000 barrels analysts expected, and are at record levels. On the other hand, inventories of distillates, which include heating oil and diesel fuel, fell by 2.4 million barrels, more than the expected 1.9 million barrel decline, and are low in historic terms.
Refiners ramped up production for the second week in a row, boosting activity by 1.2 percent to 85.9 percent of capacity, beating analyst forecasts.
Oil pulled other energy futures higher Wednesday. April gasoline rose 11.3 cents to settle at $2.6421 a gallon on the Nymex, and April heating oil futures jumped 15.13 cents to settle at $2.9431 a gallon after rising to $2.9484, a record high. April natural gas rose 38.8 cents to settle at $9.741 per 1,000 cubic feet.
In London, April Brent crude rose $4.12 to settle at 101.64 on the ICE Futures exchange.