March 18, 2005
Reuters
Yahoo News
Photo: The board at the International Petroleum Exchange in London. World oil prices soared to fresh record high levels, with New York's main crude contract above 57 dollars per barrel for the first time, underpinned by robust global demand.(AFP/File/Adrian Dennis)
LONDON (Reuters) - Oil prices scaled fresh highs on Thursday, forcing OPEC to consider a second output increase just a day after its deal to raise supplies failed to halt crude's record-breaking advance.
U.S. light crude broke above $57 for the first time, gaining $1.04 to $57.50 a barrel. London's Brent crude, benchmark for European imports, rose $1.12 to a record $56 a barrel.
"It's not in our hands, prices are determined by the market," said UAE Oil Minister Mohamed al-Hamli.
The Organization of the Petroleum Exporting Countries agreed on Wednesday to raise output by 500,000 barrels per day with immediate effect. The agreement allows the addition of a further 500,000 bpd if prices do not fall below $55 for U.S. crude.
"If prices continue as they are now, then starting from next week we will start our (telephone) discussions," OPEC President Sheikh Ahmad al-Fahd al-Sabah told reporters in Isfahan, Iran.
With its output already near a 25-year high, OPEC is stretched to meet rising demand, encouraging the investment community to bet that oil's bull run can go further.
Mainstream investors are diversifying into energy and commodities markets, driving U.S. crude on average to $49.16 so far this year, up $7.70 from 2004's average and $18 higher than the mean for 2003.
Rodrigo Rato, the head of the International Monetary Fund, said on Thursday that, despite the risks posed by oil, world growth still was expected to beat 4 percent in 2005.
"Oil demand has continued to be more income elastic than expected and less price elastic and for now there is no obvious dynamic in play to derail demand significantly," said Paul Horsnell of Barclays Capital.
"Clearly, at some stage, demand elasticity must start to bite but remarkably so far there is no such sign despite $55 oil," said economist Mehdi Varzi at Dresdner Kleinwort Wasserstein.
WEAK DOLLAR PROTECTION
Economists say one of the reasons is that non-dollar economies are insulated from some of the rise in U.S. dollar-denominated oil prices by the weakening of the U.S. currency.
Unrelenting demand growth from China is fueling economic strength in other emerging Asian economies, while the United States so far is absorbing higher fuel costs.
Oil's latest charge higher came after U.S. government data on Wednesday showed U.S. gasoline stocks falling by 2.9 million barrels, more than three times market expectations.
U.S. oil demand for the four weeks ending March 11 rose to 20.72 million barrels a day, up 1.5 percent on the same period last year. Cold weather fueled year-on-year demand growth in the week to March 11 of 4.8 percent, to 21.26 million bpd.
With OPEC struggling to contain prices before weak seasonal demand in the second quarter, OPEC ministers said this week prices could go even higher later in 2005.
World oil demand is expected to rise to 86.1 million bpd during the seasonal demand peak in the fourth quarter, up from 83.7 million bpd over the first nine months of 2005, projections from the Paris-based International Energy Agency showed.
OPEC is not getting much help from non-cartel oil producers.
Norway, the world's third-biggest crude oil exporter, said it had limited capacity to boost output. OPEC has urged big non-OPEC suppliers, also including Russia and Mexico, to also raise production.
http://news.yahoo.com/news?tmpl=story&u=/nm/20050317/bs_nm/markets_oil_dc_26