NY Times - 22/4/2006
Oil futures surged yesterday to a new high, above $75 a barrel, capping a record-breaking week on commodity markets.
The rise in oil prices, which ended with a $5 jump this week alone, came amid heightened concerns over Iran's nuclear program, interruptions in Nigeria's oil production and fresh fears about gasoline shortfalls in the United States this summer.
While yesterday's price was the highest reached on the New York Mercantile Exchange since oil futures began trading there in 1983, it is still lower than the inflation-adjusted record reached in 1981 of about $85 a barrel in today's dollars. But it's getting close.
Crude oil for June delivery rose to $75.17 a barrel, up $1.48. Futures touched an intraday trading high of $75.35 a barrel. Oil prices, up 23 percent this year, have more than doubled in two years.
"It's been a wild week on top of the previous wild week, coming after a wild year," said Thomas Bentz, an oil broker with BNP Paribas in New York. "And it seems like there's no slowing this thing down."
The continued gain in oil prices, and fears of inflation that it fueled, helped quiet Wall Street yesterday, with the markets giving up early gains. [Page C6.]
While there is still enough oil to go around, oil markets remain tight. With worldwide demand at 85 million barrels a day, the level of spare capacity — or additional oil production that can quickly be brought on the market — is 1.5 million to 2 million barrels a day, or about 2 percent of total demand. In the 1980's, the percent of spare capacity was in the double digits and oil prices were in the low $20's.
In this context, many analysts fear that the diplomatic standoff between Western powers and Iran over its nuclear program could spin out of control and affect Iran's oil exports. Iran, the No. 2 producer within OPEC, after Saudi Arabia, produces about 3.4 million barrels a day.
Adding to the market's nervousness, Hugo Chávez, the president of Venezuela, predicted on Thursday that oil prices would shoot to $100 a barrel if the United States invaded Iran. While that prospect remains distant, it is the sort of headline news that feeds the speculative frenzy.
In Nigeria, another OPEC producer, rebels have threatened new attacks against energy operations.
Since the beginning of 2006, attacks by militants in the Niger Delta have forced oil companies to cut production by about 500,000 barrels a day, over 20 percent of output.
"You have all the elements to push the price up: high demand, tight supplies, tight refining capacity, interruptions in supplies, geopolitical tensions, Iran, Nigeria, etc.," said Roger Diwan, a partner at PFC Energy, an consultancy in Washington. "The upside is bigger than the downside, so the money is piling in."
That has encouraged more speculative buying from hedge funds and other players, according to the latest industry report published yesterday.
In recent years, financial investors, hedge funds and long-term pension funds have greatly contributed to the rise in oil futures, which also allows them to hedge against other investments, like currencies, inflation or even Chinese growth.
The value of speculative investments in crude, gasoline and heating oil markets jumped to $50 billion last week, up from $15 billion in 2003. These figures are just the tip of the iceberg, since they do not take into account the options, over-the-counter traders and positions held by oil traders and brokers or oil companies, for which data is incomplete.
"Oil is no longer negotiated between oil companies and consumers," Mr. Diwan said, "but it's become a financial instrument, an asset class of its own."