August 20, 2004
By MICHAEL McDONOUGH
Associated Press Writer
LONDON -- Crude oil prices passed $49 per barrel on Friday, striking fresh record levels amid heightened concern about supplies in Iraq, and doubts over how much extra crude could be pumped anytime soon to ease the price surge.
The spike brought prices close to the psychologically important $50 threshold.
U.S. light crude for September delivery peaked at $49.27 a barrel on the New York Mercantile Exchange, a new intraday high. That later fell to $49.20, 50 cents above Thursday's closing price of $48.70, which was the highest Nymex settlement on record.
When adjusted for inflation, oil is roughly $8 less per barrel than it was leading up to the first Gulf War.
On London's International Petroleum Exchange, Brent crude futures for October delivery also soared to a new intraday record high of $45.15, before falling to $45.06.
Market watchers said some investors had started to whisper about the possibility of a $60 barrel, even as the head of producers' cartel OPEC made soothing-but-vague comments about "a significant outcome" from its next members' meeting in September.
"$50 is, I would say, a foregone conclusion," said Esa Ramasamy, editorial manager for oil in Asia at Platts, the energy market analysts. "Now the market is thinking $60, possibly."
The September futures contract -- essentially a bet about where crude prices would be in that month -- was due to expire later Friday. OPEC President Purnomo Yusgiantoro said Friday in Jakarta: "I expect there will be a significant outcome from the meeting to overcome this big problem (of rising oil prices)."
Similar comments from OPEC officials have so far failed to halt the energy market's record-breaking run as investors suspect tight supplies and possible disruption are currently more powerful factors than loose assurances from the cartel.
OPEC accounts for a third of global supply, but around half the oil exported worldwide. Its ministers are set to gather in Vienna, Austria Sept.15-16.
Purnomo, who is also Indonesia's energy minister, told reporters the Organization of Petroleum Exporting Countries will also meet with major non-OPEC oil producers at the meeting. He didn't elaborate.
"The momentum of fear is running so hot now, everyone is waiting for something bad to happen," said Ng Weng Hoong, editor at EnergyAsia.com in Singapore.
Market-watchers said concern was still focused on the showdown in Iraq between radical cleric Muqtada al-Sadr and coalition forces in the holy city of Najaf, a confrontation that has already lasted three weeks.
The militia has repeatedly threatened to target Iraq's vulnerable oil infrastructure, especially the Gulf state's pipeline network, accentuating market fears about tight global supplies.
Oil prices are now up 57 percent in the past 12 months, although in real terms -- adjusted for inflation -- they remain about $9 a barrel lower than in the run-up to the first Gulf War in 1991.
When asset prices undergo rapid shifts, trading levels often overshoot, or swing far beyond the levels dictated by fundamentals as quickly shifting sentiment takes hold. The condition accentuates volatility, as do the activities of large hedge funds.
The showdown in Iraq is just one of a slew of factors that has driven crude prices to a series of record highs this year even as demand remains robust because of rebounding growth in major economies.
Analysts also cite the fear of more terror attacks in Saudi Arabia, the world's top producer, and the battle by Russian oil giant Yukos against bankruptcy as other factors behind the price surge. Production capacity remains stretched, they add.
But Ramasamy cautioned that the sight of repeated record highs is spurring major energy consumers -- both countries and companies -- to start economizing in earnest.
"At these kinds of dizzy heights, the reactions start setting in," he said, citing government-led efforts in South Korea and Thailand curb save power consumption. Both countries are oil importers.
"This will spread to other countries too," he said. "When everybody does it, it really puts demand down again."
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