Crude oil futures are heading toward $100/barrel
By Tom Stundza -- Purchasing, 11/7/2007 2:45:00 PM
Crude oil futures hit $98/barrel late Tuesday, causing the U.S. government to revise sharply upward its forecast for oil—and downstream products--in the fourth quarter.
Light, sweet crude oil settled at $96.70/barrel on the New York Mercantile Exchange because of supply disruptions in the North Sea and new lows in the value of the U.S. dollar. Then, in after-hours trading, futures jumped to a new record above $98 when bombings in northern Afghanistan and an attack on a Yemeni oil pipeline that carries 155,000 barrels a day of crude compounded the supply concerns that have driven crude prices higher in recent weeks. Some commodities analysts think crude oil futures will hit the $100 mark later this week.
Oil futures have surged more than 40% since mid-August on their march toward $100. The energy product’s bull run has been underpinned by concerns that fourth-quarter demand will outstrip supply significantly. So, the federal Energy Information Administration now says in its monthly energy outlook that spot West Texas Intermediate (WTI) prices will average $87/barrel in the fourth quarter compared with $75 in the third quarter—and $60 in the fourth quarter of 2006.
Regular unleaded gasoline is averaging $3.02/gallon this week, the highest retail price in seven month, according to the AAA motor club. Separately, the federal Energy Information Administration reported that diesel fuel prices reached a national average of $3.303 a gallon, a new record. Also inflating are market prices for heating, distillate and jet fuel—products where “buyers can expect continued volatility,” write the analysts at BMO Commodity Products Group in New York.
Global oil markets will likely remain stretched, as world demand has continued to grow much faster than supply outside of the Organization of the Petroleum Exporting Countries, putting pressure on OPEC members and global inventories to bridge the gap, says the EIA report, adding: “Additional fundamental factors contributing to price volatility include ongoing geopolitical risks, OECD inventory tightness, and worldwide refining bottlenecks.”
Reports of operational problems have served to exacerbate supply worries so EIA projects that at the end of 2007, commercial oil inventories held by major industrialized countries will be 4.8% below a year ago. Total U.S. petroleum consumption is expected to increase by 0.5% in 2007 and 1% in 2008, despite the higher oil and petroleum product prices. Continued economic growth and colder average temperatures this winter than last winter combine to push demand higher. “As a consequence, crude oil prices are expected to remain high and volatile,” says the EIA report.
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