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Archive for July, 2006

The price of oil briefly surpassed $78 a barrel

Saturday, July 15th, 2006

The price of oil briefly surpassed $78 a barrel Friday and finished 4 percent higher for the week after Israeli attacks against Lebanese militants stoked fears of a wider Middle East conflict and possible oil-supply disruption.

The run-up in oil raised concerns about inflation and the economy at large, sending stock prices tumbling. OPEC tried to reassure the market by stressing its commitment to “order and stability,” but at the same time said it “has no influence” over the geopolitical turmoil underlying today’s volatility.

Because oil accounts for more than 50 percent of the cost of gasoline, U.S. pump prices, now averaging $2.96 a gallon nationwide, are likely to climb some more, analysts said.

On Friday, light sweet crude for August delivery on the New York Mercantile Exchange soared as high as a record $78.40 a barrel in electronic trading before settling at a record $77.03, an increase of 33 cents from Thursday’s record close.

Gasoline futures rose by 2.36 cents to settle at $2.3249 a gallon _ the highest level since late September of last year, when U.S. refinery output was sharply curtailed by hurricane damage.

In London, Brent crude futures gained 58 cents to settle at $77.27 a barrel on the ICE Futures exchange.

“We’ve reached a level where we’ve put all the scare premium into the market that we can,” said James Cordier, president of Liberty Trading in Tampa, Fla. “At this point, we have to have a disruption to move smartly higher from here.”

Cordier said that while fuel demand in the U.S. is still strong, rising energy costs appear to be dampening consumer spending in other areas and that could eventually slow the economy enough to help cool energy prices.

But there won’t be any significant decline until at least the end of the summer, and that assumes that the Gulf Coast sustains no serious hurricane damage this year.

Israel widened its offensive on Lebanon on Friday, with fighter bombers blasting the airport for a second day and cutting off the main highway to Syria. Hezbollah has fired more than 100 rockets into Israel. More than 80 people have died, most in Lebanon, in three days of violence sparked by the capture of two Israeli soldiers by Hezbollah militants.

While Israel and Lebanon are not major oil suppliers, the fear is that the conflict could expand in the region, which produces nearly a third the world’s oil and has almost two-thirds of its untapped reserves.

Iran has threatened to use oil as a weapon if the United Nations invokes sanctions in its dispute with Tehran over its nuclear program. While OPEC’s No. 2 supplier has not raised the issue of withholding oil from the market in a sign of solidarity with Hezbollah, the possibility, while deemed unlikely, weighs on the market’s psychology, analysts said.

Oil prices surged to a record above $78 a barrel as a result of the conflict between Israel and Lebanon

Thursday, July 13th, 2006

Oil prices surged to a record above $78 a barrel Thursday in a market agitated by escalating violence in the Middle East and the threat of supply disruptions there and beyond.

The latest surge in oil shook stock-market investors’ confidence, though economists said most U.S. consumers and businesses appear to be absorbing higher energy costs surprisingly well.

U.S. gasoline demand continues to rise in spite of near $3-a-gallon pump prices, core inflation remains relatively low and the U.S. economy is forecast to grow by roughly 3 percent in the second half of the year.

“Two years ago I might have said that $70 or $75 a barrel would be some kind of a tipping point. Now I’m not so sure anymore,” said Nariman Behravesh, chief economist at Global Insight, a private forecasting firm.

Still, Behravesh said lower-income Americans are suffering disproportionately from higher energy costs and “I could certainly make a policy case for helping them out on a temporary basis.”

Light sweet crude for August delivery settled at a new high of $76.70 a barrel on the New York Mercantile Exchange, then continued climbing in after-hours electronic trading, when volumes are significantly lower, to $78.35. The rally came as fighting between Israel and Lebanon intensified, explosions hit Nigerian oil installations and a diplomatic standoff dragged on between the West and Iran over its nuclear program.

The previous Nymex settlement record of $75.19 was set July 5. The previous intraday record of $75.78 was posted two days later.

Adjusted for inflation, oil prices would need to rise to about $90 a barrel to exceed the highs set a quarter century ago when supplies tightened in the aftermath of a revolution in Iran and a war between Iraq and Iran.

Today oil prices are being pushed higher by rising global demand and worries that the world’s limited supply cushion would not be adequate to offset a lengthy disruption to output in major producing countries, such as Iran or Nigeria. There are also concerns about the risks hurricanes pose to U.S. production.

The latest fear being priced into the market is that the conflict between Israel and Lebanon could spill over into other corners of the Middle East, the region that produces nearly a third the world’s oil and contains almost two-thirds of its untapped reserves.

Israel intensified its attacks against Lebanon on Thursday, imposing a naval blockade, twice hitting Beirut’s airport and blasting two Lebanese army air bases near Syria. Hezbollah fired more than 100 rockets into Israel, which said one also struck the port city of Haifa. More than 51 people have died in two days of violence following the capture of two Israeli soldiers by Hezbollah militants, who have financial links to Syria and Iran.

Iran has threatened on more than one occasion to use oil as a weapon if the United Nations uses economic sanctions or some other punishment in its dispute with Tehran over its nuclear program. While OPEC’s No. 2 supplier has not raised the issue of withholding oil from the market in a sign of solidarity with Hezbollah, the possibility is no doubt influencing oil traders’ actions.

“It plays psychologically in people’s minds,” said Larry Goldstein, president of the Petroleum Industry Research Foundation, a New York- based industry-financed think tank. “You don’t have to hear them say it.”

In Nigeria, government officials said twin explosions hit oil installations belonging to an Italian oil company in the volatile southeastern delta region. Elsewhere, militants attacked a group of 11 boats carrying supplies to Chevron’s offshore oil fields Wednesday, killing four navy sailors who were escorting the convoy, Brig. Gen. Alfred Ilogho said Thursday.

“The oil price has become a register of geopolitical tensions and fears,” said Daniel Yergin, who heads Cambridge Energy Research Associates.

Yergin said petroleum supply-demand fundamentals are improving, with global oil inventories and spare oil-production capacity rising, but clearly not enough to offset the geopolitical unrest.

The surge in oil prices rattled stock market investors, sending the Dow Jones industrials sharply lower for the second straight day. Shares of Wal-Mart Stores Inc., the world’s largest retailer, slumped 2 percent on the New York Stock Exchange on concerns that high energy prices are cutting into consumers’ discretionary income.

“The economy took $50 oil in stride,” Yergin said. “It’s clearly not taking $70 or $75 a barrel in stride. This is a rougher adjustment.”