Oil rises to US$122 on fresh supply fears

Oil set a new record high of US$122 a barrel yesterday, the latest spurt in an advance that has seen prices double over the past 12 months.

Supply disruptions in Nigeria, where a strike and attacks by militants have hit production, helped boost a market that is nervous about any threats to supply.

Adding to the tense climate was Iran, the world’s fourth-biggest oil producer, when it refused to accept intrusive inspections of its nuclear programme, which the West fears could be linked to weapons.

US light crude for June delivery rose as much as US$2.03 to US$122, while London Brent crude climbed US$2.36 to a record US$120.35.

Goldman Sachs has predicted that oil could soar towards US$150 to US$200 a barrel because of a lack of adequate supply growth.

‘The possibility of US$150 to US$200 per barrel seems increasingly likely over the next six to 24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,’ the bank said.

Oil has nearly doubled in the past year and is up by a quarter since the start of this year, partly because of the problems in Nigeria, as well as weakness in the US dollar, which has boosted the price of commodities.

Oil price close to US$120

By Jessica Cheam, ST

Crude oil hit a new record of nearly US$120 a barrel yesterday as a workers’ strike closed a major British oil pipeline and fresh violence in Nigeria reignited supply fears.

Rationing is already being enforced at some British outlets amid panic buying.

Soaring oil prices are hurting Singapore car drivers at the petrol pump, just as they are adding to corporate costs around the globe – fuelling growing inflation fears.

The question on everyone’s lips now: Just how high will oil prices go?

Experts and other oil industry figures are split. Some say it could hit US$200 a barrel, but others expect the price to ease to an average of US$95 a barrel this year and the next.

Still, the latest developments are adding to the jitters.

Oil for June delivery rose as much as US$1.41, or 1.2 per cent, to US$119.93 a barrel in after-hours electronic trading on the New York Mercantile Exchange yesterday – the highest since futures began trading in 1983, reported Bloomberg.

The contract eased back to US$119.04 a barrel by noon in Europe, up 52 US cents from last Friday’s close of US$118.52.

The shutdown of one of Britain’s biggest oil refineries over a pension-row strike was expected to prompt more panic buying of petrol yesterday as motorists, particularly in Scotland and northern England, rushed to pumps to stock up.

Also in Nigeria last Friday, the key armed group in the southern oil-producing region sabotaged a supply pipeline owned by Shell.

In a report last Friday, Mr Adam Sieminski, Deutsche Bank’s chief energy economist, said there was a huge risk that oil price ‘will escalate until it gets to some level when demand finally collapses because ordinary people can no longer afford to burn as much energy as they are burning now’.

Organisation of Petroleum Exporting Countries (Opec) president Chakib Khelil reportedly does not rule out oil hitting US$200 a barrel even with adequate supply.

At a seminar at the National University of Singapore yesterday, Professor Sam Ouliaris of the economics department had a more conservative estimate. He sees average oil prices at about US$95 a barrel for this year and the next, and cited several key reasons for the recent hikes: tight supply, disruption of oil facilities, Opec’s limited excess capacity, and the declining US dollar, in which oil contracts are priced.

Speculative activity by hedge funds – lured to commodities trading because of the volatility of equity markets and low interest rates – has also contributed to the price hikes, he added.

Prof Ouliaris, a former senior International Monetary Fund researcher, added that consumption in growing major markets such as China and the Middle East is driving up prices. But he said the recent oil price shocks are ’small, relative to those in the 1970s’.

For hikes to have the same impact as they did in the 1970s, when oil rose from around US$3.50 a barrel to US$35, current prices would have to hit US$250 a barrel in 2010 to 2013, said Mr Sieminski in his report.

Standard Chartered Bank economist Alvin Liew, however, puts oil prices slightly higher at about US$104 a barrel for this year.

‘I think we can see an easing of demand in the second half of the year. If the US is indeed in a recession, demand will fall accordingly,’ he said.

Prof Ouliaris added that a long-term solution is to minimise the growth in consumption, particularly in the transport sector, as oil supplies are likely to remain tight.

‘In the meantime, get used to high oil prices,’ he said.

Oil rises above US$115 on tight supply, weak dollar

Oil set a record above US$115 a barrel yesterday, as a drop in the United States’ petrol inventories raised concern of tighter supply and a weak dollar boosted investor demand for commodities.

A US government report on Wednesday showed a surprise drop in crude inventories and a larger-than-expected decline in stocks of petrol. Demand for motor fuel usually peaks in the summer.

‘Summer driving season is approaching. Even in a recessionary economy, seasonal petrol demand will pick up, which adds to stress on the global oil supply chain,’ said Mr Jan Stuart at UBS.

‘But before we get there, the stress already put onto the supply chain globally by middle distillate demand and supply dynamics is not still abating,’ he said in a research note.

US crude set a record of US$115.54 a barrel and by 0958 GMT (5.58pm Singapore time) yesterday was trading at US$115.24, up 31 US cents.

Oil has hit new peaks for three consecutive days. London Brent advanced as much as 72 US cents to a record US$113.38 a barrel on London’s ICE Futures Europe exchange.

London’s gas oil, – the benchmark for heating oil and diesel in Europe – set the pace for crude oil and refined product futures, gaining 1.1 per cent to US$1,056.25 a tonne.

In the latest indication of strong demand for middle distillates, China’s top refiners were set to extend unusually high imports into a sixth straight month.

PetroChina, China’s second-largest refiner, has bought 300,000 tonnes of gas oil for next month, traders said.

The weakness of the dollar continued to attract investors into commodities to hedge against inflation and bet oil’s rally would help compensate for the shrinking value of dollar assets in their portfolios.

The dollar has declined 13 per cent on a trade-weighted basis in the past 12 months, as the collapse of the US sub-prime mortgage market prompted the Federal Reserve to cut rates to prevent bank losses from pushing the US economy into a recession.

US$110: Oil prices hit new high, adding to inflation fears

By Nicholas Fang, ST

Barely two months after breaking the landmark US$100-a-barrel level, crude oil hit another milestone late on Wednesday when it briefly surged past US$110 a barrel.

And while it hovered just under US$110 yesterday, economists in Singapore said higher fuel prices could add to existing fears of rising inflation and slower economic growth this year.

New York oil prices set an all-time trading high of US$110.20 per barrel on Wednesday before registering the record closing price of US$109.92.

Market watchers said soaring prices have been fuelled by strong investor demand for commodities to hedge against rising inflation and the ailing United States dollar.

Crude oil, which is priced in the American currency, has become more affordable for buyers holding stronger currencies who then up their demand and purchases.

United Overseas Bank economist Ho Woei Chen said higher oil prices are definitely one of the contributing factors to slower growth. ‘But with the economy slowing down, we expect the demand for oil to ease at some point.’

Opec will maintain oil output

OPEC ministers yesterday kept output steady and said record high prices had been driven by a series of factors that were beyond their control.

United States crude hit a record of US$103.95 a barrel on Monday and was trading above US$100 yesterday.

Washington has said even a token supply increase from the Organisation of Petroleum Exporting Countries (Opec) would help to tame prices.

But Opec ministers have repeatedly said the market has been driven upwards by factors such as a weak US dollar, speculation and political strife, and not by a lack of oil.

After less than two hours of talks, Opec delegates told Reuters that the group had reached agreement to keep supplies steady.

Nigerian Minister of State for Oil Odein Ajumogobia said earlier that he believed output should be kept steady, although he said oil above US$100 was uncomfortable and above US$80 a barrel was high. ‘The Opec official position has been that anything above US$80 is on the high side,’ he told reporters.

Yesterday’s no-change decision could still allow for quiet shifts in Opec production.

Top exporter Saudi Arabia has consistently pledged to keep the market well-supplied with oil. Saudi Arabian Oil Minister Ali al-Naimi said the kingdom had been pumping 9.2 million barrels per day (bpd) ‘day in, day out’, which is roughly 300,000 bpd above its formal Opec output target.

Piling the pressure on Opec, Washington said on Tuesday that a modest output increase of 300,000 bpd to 500,000 bpd could calm prices and help to limit any economic damage.

‘I think it’s a mistake to have your biggest customer’s economy to slow down…as a result of high energy prices,’ US President George W. Bush said.

Given they do not believe oil prices have been driven higher by a lack of crude, Opec ministers have been sceptical that an output increase would have any impact on the market.

The group’s 13 members, who pump more than a third of the world’s oil, could have an opportunity to reassess the market at producer- consumer talks in Rome on April 20 to 22.