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Puck
The Texan
Joined: 05 Jan 2004
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 Tue Sep 28, 2004 8:26 am Crude Tops $50; Saudis to Hike Capacity |
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Crude Tops $50; Saudis to Hike Capacity
Tuesday, September 28, 2004
LONDON � Crude oil topped the psychological milestone of $50 per barrel Tuesday for the first time, and a Saudi Arabian oil official said the world's largest petroleum exporter would raise its production capacity by 15 percent in a bid to calm prices.
Analysts said instability in the Middle East, political unrest in Nigeria, Africa's top oil exporter, and damage to U.S. production from the Caribbean's hurricanes were keeping traders on edge about world supplies. Some said the price may not be sustainable and may soon fall.
In response to the increase, Saudi Arabia announced it will raise its oil production capacity from 9.5 million barrels a day to 11 million barrels in order to "stabilize" prices.
By increasing capacity, Saudi Arabia will be able to raise production when it wants. A Saudi oil ministry official, speaking on condition of anonymity, said that the kingdom would increase production "depending on demand."
The capacity increase by the world's largest oil exporter will go into effect within weeks, using new fields where production has just begun, Oil Minister Ali Naimi said.
"The fields of Abu Safa and al-Qatif, which have just started production, will be used to increase the kingdom's production capacity in the coming few weeks to 11 million barrels per day," the minister said in a statement.
"In light of the recent developments in the oil market and the increase in prices that exceeded $50 ... Saudi Arabia is closely monitoring the various developments in the international oil market and is working on stabilizing that," he said.
Naimi added that the increase was meant to control "prices so that they will not harm international economic growth."
Earlier Tuesday, Purnomo Yusgiantoro of the Organization of Petroleum Exporting Countries (search) said producers are trying to bring prices down, but the group thinks supply is not the problem because it has at least 1.5 million barrels a day of spare capacity.
By midafternoon in Asia, light sweet crude oil for delivery in November traded at $50.47 per barrel, up 83 cents from the close of Monday's regular session in New York.
During electronic pre-session trading on the New York Mercantile Exchange (search) on Tuesday, light crude for November delivery traded up 53 cents per barrel at $50.17.
Oil prices rose despite assurances from OPEC's president that producing nations were seeking ways to calm markets after an announcement that the cartel would boost production by 1 million barrels a day failed to move the price lower.
"The latest spark was the reported increase in fighting in Nigeria," said ANZ Bank energy analyst Daniel Hynes from Melbourne, Australia. But the damage from Hurricane Ivan (search) "certainly paved the way for the latest surge."
Rebels in Nigeria continue to battle for control of the vast southern oil fields in the world's seventh-largest exporter.
The Niger Delta People's Volunteer Force (search) rebel group said Tuesday the insurgents will begin a full-scale armed struggle to gain control of the regions oil riches from Nigeria's government beginning Oct. 1.
That rattled markets, even though Nigeria's military dismissed the threat and the country's senior oil adviser, Edmund Dakoru, told Dow Jones Newswires he is confident that foreign oil companies won't succumb to threats by militia that they must halt their oil production in the country.
"We have had these kind of threats before and nothing has happened," Dakoru said. "And I am not concerned that Nigeria's oil industry will suffer as a result of these threats."
The United States has lost more than 11 million barrels of oil production in the past two weeks, according to U.S. government data, with Gulf of Mexico output still down nearly 500,000 barrels a day following the devastation brought by Ivan.
The price of oil is up roughly 75 percent from a year ago and some analysts predict the latest surge � which is already hurting airlines and other big consumers � could lead to a global recession.
Although oil is at an all-time high, prices are not at record levels when inflation is taken into account. Adjusting for inflation, today's prices are still more than $30 below the level reached in 1981 after the Iranian revolution.
That hasn't eased the fears gripping the market, however.
"There is a lot of fundamental panic buying by the end users," said oil strategist Ng Weng Hoong at Energyasia.com in Singapore, adding that he believed the price would go still higher.
With global oil demand at roughly 82 million barrels a day, analysts say the amount of excess oil production available is only about 1 percent, leaving the industry a slim margin for error in the event of a prolonged supply interruption.
On Monday, the U.S. Minerals Management Service reported that daily oil production in the Gulf of Mexico is 29 percent below normal at about 1.2 million barrels per day. Eleven million barrels of oil, or 1.9 percent of annual production in the Gulf of Mexico, have been lost since Sept. 13, when offshore producers began evacuating crews and shutting down production ahead of Ivan's arrival.
In Iraq, fighting between U.S.-led forces and rebels has shown no sign of letting up ahead of the country's elections in January.
Also Tuesday, heating oil futures breached $1.38 per gallon, reflecting supply concerns ahead of the Northern Hemisphere winter.
In London, Jeremy Batstone, an analyst with Charles Stanley, said, "The cost of oil needs to rise much further before it has a major impact on the global economy,"
Jason Kenny, and oil and gas analyst with ING Financial Markets in Scotland, said: "There is a lot of supply concern in the market, I think we'll have a lot of volatility over the next few weeks, until we get some clarity about U.S. oil inventories, OPEC output movements, geopolitics."
Kenny said oil prices could conceivably rise to $60 in the near future, but he said they were more likely to fall, barring another major terrorist attack. "I personally think the $50 level is unsustainable," he said, because some oil importing nations can't afford that price.
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All market data delayed 20 minutes.
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