Canada.com - 9/7/2006

Oil prices hit new records Friday before easing below $75 US per barrel.

Crude for August delivery rose as high as $75.78 before sliding to $74.08, down $1.06 on the day.

That was the highest intraday level since crude oil futures began trading on the New York Mercantile Exchange in 1983. The previous intraday record of $75.40 was set Wednesday.

"If we had a surge into the 80s, I wouldn't be surprised," said Martin King, a commodities analyst with First Energy Capital Corp. in Calgary.

Thus far in 2006, oil prices are up about 24 per cent from last year and industry experts expect them to stay at the upper end of the range as long as demand for fossil fuels stays strong.

The Energy Information Administration reported Thursday that U.S. gasoline demand rose about 1.4 per cent from this time last year.

In addition, geopolitical tension in hot spots Iran, North Korea and Nigeria continue to keep a floor under prices.

Back home, companies like Western Oil Sands Inc. and Shell Canada Ltd. blamed higher oil prices for rising costs on oilsands megaprojects.

Speaking at an oilsands conference in Calgary, the companies said expansion costs for the Athabasca Oil Sands Project in northeastern Alberta have ballooned about 50 per cent to almost $11 billion.

Although high oil prices provide a plump economic cushion for $100 billion worth of new oilsands developments, the rush to build them all at once has strained the availability of skilled labour and materials like steel.

"Certainly here in Alberta it's had an impact, but overall it's still part of the bigger global picture," King said.

Carol Crowfoot, who prepares price forecasts for GLJ Energy Publications Inc. a division of Calgary engineering specialists GLJ Petroleum Consultants this week bumped her most recent estimate to $70 for the rest of the year, up from a previous best guess of $65.50.

"There isn't really anything fundamental about this," she said. "This current run-up is just skittishness in the market over the potential for supply disruptions."

Despite high prices, demand remains strong, which Crowfoot said bodes well for the broader economic picture.

"It's not all doom and gloom these high prices aren't impacting the economy like they would have 30 years ago," she said.

"The way you reduce demand is to increase price," added First Energy's King. "So far, the present indicators show the economy is hanging together quite nicely."

The TSX energy index, which accounts for about a third of the Toronto Stock Exchange, was down 1.1 per cent Friday.

Suncor Energy Inc. was the big loser on the day, falling $2.32 to $90, followed by Canadian Natural Resources Ltd., which shed $1.28 to $58.32.

However, EnCana Corp. rose 12 cents to $58, Petro-Canada was up nine cents to $52.38 and Imperial Oil Limited gained 77 cents to close at $41.02.