Lagniappe

 

 

 

Global Insight:
Oil price approaches US$100/b

Crude prices surged again yesterday (Tuesday) as several North Sea oil platforms belonging to BP and ConocoPhillips were evacuated ahead of a severe storm. At least 80,000 b/d of production are likely to be affected for the duration of the shut-in. This could rise to as high as 250,000 b/d, depending on how many platforms are ultimately evacuated. On top of this latest threat to supply was news that the U.S. dollar fell to new lows against the euro and other currencies. With the markets already concerned about the looming supply-demand balance and the weakening dollar, this news helped push crude to new record highs once again.

Front-month NYMEX crude closed the day on US$96.70/b, up US$2.72/b on the previous close and a new record. ICE Brent was also up sharply to end the day on US$93.26/b. In electronic trading following the close in New York, NYMEX crude has continued to reach new peaks touching US$98.37/b (as of 08:53 GMT), another new record high. Prices are now approaching the inflation-adjusted record highs seen in 1980/81, which roughly equate to US$101-107/b depending upon the calculation used.

Significance: The run on US$100/b now seems inevitable, with yesterday's weak dollar and North Sea shut-in providing the momentum needed. In the short term all eyes will be fixed on the U.S. government's Energy Information Administration (EIA), which today releases new weekly U.S. inventory data. Traders are expecting a fall of up to 1.5 million barrels in crude stocks-anything in excess of this figure will almost certainly push prices through the US$100/b barrier. The current market mood is such that very high prices in the immediate future are inevitable.

Fundamentals still indicate that prices should fall back next year, as we are beginning to see a demand response and significant new production is due to be added. In fact, the current spike makes a price correction next year more likely, as it should approach levels that will either force the U.S. Federal Reserve to counter rising inflation by halting the rate cut policy (or even raising rates), and/or result in some reduced demand due to the price level. How high prices rise in the immediate future will depend upon the severity of the Northern hemisphere winter, continued speculative activity, and the number of unexpected supply threats or disruptions.

By Simon Wardell an energy analyst for Global Insight International.
(simon.wardell@globalinsight.com). Global Insight's Energy Group provides independent, comprehensive analysis, forecasts, data, and of the worldwide energy marketsplace. Petroleumworld does not necessarily share these views.

Editor's note: For more information on Global Insigth, contact: Catarina Feria-Walsh Global Insight, catarina.walsh@globalinsight.com. / www.globalinsight.com

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Petroleumworld News 11/08/07

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