Nov 7, 2007 6:30 am US/Eastern
Oil Races Toward $99 A Barrel On Weak Dollar
NEW YORK (CBS News) ―
Oil prices jumped above $98 a barrel Wednesday, a new record, amid expectations of declining U.S. supplies. The falling dollar and OPEC's apparent reluctance to pump more crude into the market also boosted prices.
Light, sweet crude for December delivery surge $1.25 to $97.95 a barrel by midday in Europe after earlier reaching as high as a record $98.62 in electronic trading on the New York Mercantile Exchange.
The contract hit a high of $97.10 Tuesday before closing at $96.70 a barrel, a record settlement 66 percent higher than the close on the first trading day of the year.
In London, Brent crude rose $1.31 to $94.57 a barrel on the ICE Futures exchange. A number of North Sea oil platforms were evacuated Tuesday ahead of expected severe weather, and BP PLC said it expects to shut production Thursday from its Valhall oil and gas field.
Tensions in the Middle East and political unrest in Pakistan have added to the uncertainty on Wall Street, which has sent the markets into turmoil, reports CBS News correspondent Michelle Miller.
"The oil market sentiment remains bullish ... there is an overall upward trend toward the $100 level," said Victor Shum, energy analyst with Purvin & Gertz in Singapore. "Meanwhile, we can expect extreme volatility where on the one hand some traders will take profit while others will buy back positions."
"I don't think it's a question of whether we hit $100. It's a question of how much time we might spend there," Tom Kloza of the Oil Price Information Service told CBS' "The Early Show."
Figures to be released later Wednesday by the U.S. Energy Department's Energy Information Administration are expected to show crude supplies dropped last week. Analysts surveyed by Dow Jones Newswires predict, on average, that crude oil inventories fell by 1.6 million barrels.
Traders remain worried about whether supplies will be adequate to meet demand for heating fuel in the approaching Northern Hemisphere winter. News of an attack Monday on an oil pipeline in Yemen added to those concerns.
"The price rise is really driven by expectations of drawdowns in crude oil and distillate stocks inventories in the U.S. inventory report," said Shum. "Some cold weather reports out of the U.S. and Europe serve as a reminder that winter is coming and that there are still supply concerns."
Kloza says one should never underestimate a market's capacity for excess.
"I suppose we could go to $100, $105, but this shouldn't be the new normal. These numbers should be excessive and we should come down," Kloza told "The Early Show."
"Even if we came down $20, $25 a barrel, we're still talking about $75 which represents the highest prices for crude oil we've ever seen in the wintertime," says Kloza. "These numbers are spectacularly high right now."
On Tuesday, the U.S. Department of Energy's EIA said oil stocks in the countries of the Organization for Economic Cooperation and Development are forecast to fall this winter, ending the year at the lowest level since January 2005.
In London, International Energy Agency head Nobuo Tanaka said he shared those concerns.
"We very much share the same opinions as the EIA (U.S. Energy Information Administration) on inventories heading into the fourth quarter - the stocks situation continues to tighten," Tanaka told Dow Jones Newswires at the release in London of the agency's long-term energy outlook.
"Stocks need to be higher, something that is in the power of producer countries to address," Tanaka later told a news conference.
According to the Paris-based IEA, consumers and governments globally are currently doing too little to improve energy supply security and cut pollution. In its annual outlook for energy through 2030, the agency said the next 10 years are critical for governments globally to address these challenges as energy demand surges in the booming economies of China and India.
Continuing strong global oil demand and lower-than-expected output from countries outside the Organization of Petroleum Exporting Countries will put more reliance on supplies from OPEC and global inventories, the U.S.' EIA said in its short-term outlook.
Any reduction in oil inventories is likely due to a suspension of output at Mexico's state oil company Petroleos Mexicanos, a major crude exporter to the United States, which temporarily shut its ports last week due to severe weather.
The weak U.S. dollar, which fell to another new low against the euro Wednesday, is also lifting oil prices. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.
In Vienna, PVM Oil Associates noted another potential bullish factor, saying that - despite record prices - OPEC "has not shown any intention of increasing supplies on top of the 5,000,000 b/d (barrel a day) hike, which became effective at the beginning of this month."
Analysts also expect the EIA to report Wednesday that gasoline inventories rose by 200,000 barrels during the week ended Nov. 2, while supplies of distillates, which include heating oil and diesel fuel, fell by 500,000 barrels.
Heating oil futures added 2.75 cents to $2.6353 a gallon while gasoline prices rose 2.23 cents to $2.4573 a gallon. Natural gas futures rose 5.3 cents to $7.916 per 1,000 cubic feet.
The analysts expect that refinery use grew by 0.8 percentage point to 87 percent of capacity.
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