Oil Hits New Record on Supply Worries
AP | October 12, 2007
By JOHN WILEN
Oil futures rose to a new record trading price over $84 a barrel Friday on concerns that supplies are not adequate to meet fourth-quarter demand.
Many analysts say crude inventories are falling and point to Thursday's Energy Department report that showed domestic crude supplies fell last week and an International Energy Agency report that concluded oil inventories held by the world's largest industrialized countries have fallen below a five-year average.
"This is a concern," Stephen Schork, a trader and analyst in Villanova, Pa., said in a research note. "Despite relatively weak demand ... crude stocks still fell last week."
But others think the supply shortfall in this week's inventory report are an anomaly. They doubt demand is as strong as recent forecasts by the Energy Department and the IEA suggest. These analysts expect oil prices will soon begin a seasonal decline to $70 a barrel, or lower.
"A substantial upswing in OPEC production combined with a further price induced downdraft in global demand will eventually result in much looser fourth quarter (supply) balances both domestically and globally than would be implied by current $83 (prices)," Jim Ritterbusch, president of Ritterbusch and Associates of Galena, Ill., said in a research note.
The debate has caused volatile price swings. On Monday, for instance, crude prices dropped more than $2. Each day since, prices have risen more than $1. But prices have been stuck in a rough range between $78 and $83 for more than a month.
"It's just kind of a push and shove (market)," Ritterbusch said in an interview.
Friday's jump to a new record could be a signal prices are poised to break out of that range and push even higher, analysts said.
Light, sweet crude for November delivery rose 76 cents to $83.84 a barrel by late morning on the New York Mercantile Exchange after rising as high as $84.05.
November gasoline rose 2.34 cents to $2.09 a gallon, and heating oil futures rose 1.01 cent to $2.2574 on the Nymex.
Natural gas for November rose 7.1 cents to $6.9473 per 1,000 cubic feet.
In London, November Brent crude rose 70 cents to $80.85 a barrel on the ICE Futures exchange.
While oil prices have soared in recent weeks, gasoline prices have held steady. The average national price of a gallon of gas was unchanged overnight at $2.76, according to AAA and the Oil Price Information Service. Many analysts had expected gas prices to rise to keep pace with oil's 20 percent rally between late August and late September. But falling demand has kept gas prices in check.
While some analysts believe oil's rise is justified by underlying supply and demand fundamentals, others think the high prices are due to speculative buying.
"Providing fundamental rationale behind this week's rally is a more difficult process since it has developed amidst a modicum of bullish news," Ritterbusch said. "Price movement is being heavily influenced by nontraditional investment flows."
