LONDON, 13 August 2004 — Oil prices hit fresh record highs yesterday as US-led forces battled with a Shiite Iraqi militia that has warned it could target the country’s oil infrastructure.
US light crude rose 65 cents to $45.45 a barrel, the highest price in 21 years of trade on the New York Mercantile Exchange. London’s Brent crude futures rose 51 cents to hit a new peak of $42.08.
Iraq’s oil exports have run at half normal levels for the last four days as an uprising by an anti-US cleric threatens infrastructure in southern production centers. US Marines launched a major offensive in Najaf yesterday to root out militiamen loyal to Moqtada Sadr. Sadr’s militia has threatened to blow up oil pipelines if US forces storm Najaf.
A late Monday pipeline sabotage attack has already cut loadings from Iraq’s two offshore Gulf terminals —- which account for all the country’s exports — to 960,000 barrels per day compared with 1.9 million normally.
Fears that tightly stretched supplies have left little leeway for any disruptions have added 19 percent, or $7, to a barrel of crude oil since the end of June.
A hefty and unexpected drop in US crude inventories on Wednesday has added to concerns that supply may not be able to keep pace with demand, which is growing at the fastest rate in 24 years.
US crude inventories fell by 4.3 million barrels to 294.3 million last week, the US government said in a weekly report.
Adding to supply concerns, about 25 percent of US Gulf of Mexico oil production of 1.7 million bpd was shut Wednesday by tropical storm Bonnie.
Traders also remain worried that the Aug. 15 referendum on the rule of Venezuelan President Hugo Chavez could upset supplies from the world’s fifth-biggest exporter.
And Russia’s biggest oil exporter, YUKOS, continues to battle bankruptcy, trying to avoid any disruption to its 1.7 million bpd of production.
“Everything’s gone wrong in the oil market recently. If you wanted to paint the worst scenario picture, you couldn’t do much better,” said David Thurtell, commodities strategist at Commonwealth Bank of Australia.
“There is nothing stopping this market,” said Tom Bentz, a trader at BNP Paribas Commodity Futures in New York. “Every time it dips, people have bought,” he said. “Where the top is, I don’t know.”
Traders are concerned that a surge in production by the Organization of the Petroleum Exporting Countries has left little spare capacity to cope with supply problems, despite assurances by Saudi Arabia it could increase supply.
Saudi Petroleum and Mineral Resources Minister Ali Al-Naimi said Wednesday that the Kingdom was pumping 9.3 million bpd of crude and was ready to tap surplus capacity of 1.3 million bpd if required.
The International Energy Agency adviser on energy to 26 industrialized nations, reckons OPEC’s sustainable spare production capacity shrank to 600,000 bpd in July as the group raised output to try to contain prices.