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Record Price of Oil Raises New Fears
Jad Mouawad, New York Times
The price of oil jumped to yet another record yesterday, sparking predictions that motorists would see sharply higher gasoline prices by Thanksgiving – and fears that $100-a-barrel oil is no longer such a distant prospect.
…In recent years the economy has seemed immune to rising energy prices, but some analysts fear that as they spiral higher they will undermine growth, already strained because of the downturn in the housing market. Such concerns contributed to a stock sell-off yesterday, with broad market indexes closing down about a half-percent.
Oil traders, discussing the latest rise, cited a potential conflict on the border between Turkey and Iraq that could heighten Middle East tensions and possibly affect oil supplies from the region.
“Markets hate uncertainty,” said Lawrence J. Goldstein, an economist at the Energy Policy Research Foundation. “The fundamentals are very supportive of high oil prices. But the latest run-up has nothing to do with market fundamentals, but has to do with fear.”
Since the American invasion of Iraq in 2003, oil exports from northern Iraq through Turkey have been sporadic at best because of frequent bombings of Iraq’s northern pipeline. But as oil producers worldwide are straining to meet demand, commodity investors are focused on anything that might hurt supplies.
Turkey is an important corridor for oil exports from Iraq and the Caspian Sea. The Turkish military has threatened in recent days to cross the Iraqi border to root out Kurdish separatists who have mounted attacks inside Turkey.
Oil prices have more than quadrupled since 2001 as strong demand for oil from Asia, the Middle East and the United States has outpaced the ability of producers to bring on new supplies. With little spare production capacity, the oil markets have become more volatile.
After adjusting for inflation, oil prices are getting closer to historic levels reached in the early 1980s, when an energy crisis, the Iranian revolution, and the outbreak of the Iran-Iraq war sent prices spiraling to about $100 a barrel in today’s dollars.
Energy analysts generally believe the market is overreacting to a possible Turkish incursion into northern Iraq.
(17 October 2007)
US concerned about “very high” oil prices: Bodman
Chris Baltimore, Reuters
U.S. Energy Secretary Sam Bodman on Wednesday said record high oil prices were of “great concern” to the Bush administration but declined to say whether OPEC should pump more oil to cool sizzling markets.
“The signs are that there are issues related to the amount of supply,” Bodman told reporters hours after oil touched a record peak of $89 a barrel, adding that prices were “very high.”
“I would think it would have an impact on the decision making – not just OPEC but all of the exporting countries. I think the message has become reasonably clear,” Bodman said.
(17 October 2007)
Pocketbook pinch ahead – if soaring oil prices stay high
Ron Scherer, The Christian Science Monitor
Consumers would feel the effects in the next few weeks, from the pump to the airline counter.
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A sharp increase in the price of crude oil, which is nearing $90 a barrel, could start to hit consumers in their pocketbooks in the next few weeks. Among the effects:
•Prices at the pump, which had been flat for two months, are expected to rise shortly, perhaps by as much as 10 cents a gallon. On Wednesday, GasPriceWatch.com, reported an overnight rise of 4 cents, which hiked the national average to $2.77 a gallon.
•Airline ticket prices could go up -just before the peak holiday travel season – to reflect an increase in the past two weeks of $8 a barrel or 20 cents a gallon on the world oil markets.
•Home heating oil, already at record highs, could keep rising for homeowners in the Northeast.
The economic impact of the latest surge in oil prices, which started to soar only this month, could be substantial. The rise could reduce consumer enthusiasm, particularly for lower-income Americans. Some economists believe that if the oil price hits $90 a barrel and stays there for a few weeks, businesses could start passing on their higher costs. A rise in oil prices will also make the Federal Reserve’s job more difficult as it tries to keep the economy going while maintaining price stability.
(18 October 2007)
Oil is not the only commodity on a tear
The Economist
AS oil touched $88 a barrel on Tuesday October 16th, the temptation was to seek an explanation in geopolitical events. Many cited a potential incursion by Turkish soldiers into northern Iraq. Some believed gold’s rise to a new 27-year high was driven by the same factor.
But the commodities market is being affected by a lot more than just events in the Middle East. Raw materials prices are seeing widespread gains. Talk of a “supercycle” is in the air. As of October 15th, copper, lead, soyabeans, wheat, cotton, coffee, cocoa and cattle feed were all showing double-digit percentage gains on the year.
Some of these gains can be traced back to the rise in the oil price. The planned substitution of ethanol for petrol led to a surge in corn planting; that took acreage away from other crops (like soyabeans) and led to a surge in prices. Higher livestock prices can, in turn, be explained by the rising cost of grains.
But the broad strength of commodity prices may also reflect the appeal of the sector as an “alternative asset”, along with hedge funds and private equity.
(17 October 2007)
Next Stop: $100 Oil?
Moira Herbst, Business Week
Some analysts say record highs are only the beginning. Traders betting on rising global demand could push prices up further
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Crude oil prices continued a months-long bullish run with another record-setting day: On Oct. 17, the price for a barrel of light sweet crude surged above $89 on the New York Mercantile Exchange, the highest mark recorded since contracts started trading on the exchange.
What’s driving the latest bull run? Many analysts point to growing global demand amid tightening supplies. In the latest development, Turkish legislators on Oct. 17 approved sending troops into northern Iraq to pursue Kurdish guerrillas. Concerns that such actions could disrupt oil supplies in the Middle East drove prices higher yet again, for a seventh session, capping a $9 rally that started last week.
Speculators Dominate the Market
Still, some analysts say that the latest price spike has less to do with market fundamentals than with momentum traders and speculators. As they push prices up in pursuit of profits, several experts say crude could hit triple digits. “The surge has less to do with fundamentals and more to do with irrational exuberance, and we could head higher,” says Tom Kloza, chief oil analyst for the Oil Price Information Service,
(17 October 2007)
Oil price can hit $150 before 2010 – Investec
Dominic Lau, Reuters
The price of oil, which hit a new record high above $88 a barrel on Tuesday, can rally further and may reach $150 before 2010, the fund manager for Investec’s Global Energy Fund said.
“The reason why it has potential is the underlying supply and demand fundamentals are causing a serious crunch in oil markets,” said Tim Guinness, chairman of Guinness Asset Management, who runs the Investec Global Energy Fund.
Guinness, who was chairman of Investec Asset Management for four years before he retired in 2002, said strong demand from developing countries was emulating that of the developed world from 1950 to 1970.
(17 October 2007)
The next oil shock could come soon
Malcolm Maiden, The Age
The world is not short of oil, but Asian demand and Middle Eastern turmoil are lifting prices.
ARE you ready for oil at $US100 a barrel? It’s getting closer after hitting new highs above $US88 this week, and you will feel the pain at the petrol bowser. Console yourself with the thought that you are taking a hit for your country: in the Organisation for Economic Co-operation and Development universe, there’s probably nowhere better to be than Australia when the price is surging.
Oil was still around $US88 a barrel yesterday, which is about 74 per cent above its price at the beginning of the year, and up more than 9 per cent in a fortnight, as the northern hemisphere economies that account for two-thirds of global consumption move into their energy-hungry winter, and as political tensions about Middle East supply lines swirl around the possibility that Turkey may cross into oil-rich Kurdish Iraq in pursuit of Kurdish guerillas.
…The world isn’t running out of oil soon. BP’s world energy review put oil production at 81.7 million barrels a day last year, and consumption at 83.7 million barrels: world reserves stood at 1208 billion barrels, enough for 39.5 years’ consumption at present levels. But reserves have risen by only 15 per cent since 1996, and they were unchanged last year compared with 2005. Meanwhile, demand is rising relentlessly, with Asia providing the impetus and the incremental pressure on prices.
(18 October 2007)
Think $80 oil is painful? Wait until spring
Robert Campbell, Reuters
Stable gasoline prices over the last two months have shielded U.S. consumers from the impact of galloping crude oil prices, but drivers will face more pain at the pump if the cost of crude remains high into next spring.
Retail gasoline prices have held in a tight range around $2.80 a gallon nationwide over the past two months amid a normal seasonal slowdown in road travel, even as the cost of crude oil has surged about 14 percent over the same period to a record over $85 a barrel.
The stability in gasoline prices prompted U.S. Energy Secretary Sam Bodman last week to describe the U.S. economy as “remarkably resilient” in the face of surging oil prices.
But analysts expect gasoline prices could rise to a never-before-seen $3.50 or $4 a gallon if oil prices hold near current levels into next spring when drivers hit the roads in greater numbers. That could further strain consumers already facing a housing slowdown.
(16 October 2007)
