LONDON, 21 August 2004 — Oil prices raced to fresh highs yesterday, carrying US crude over $49 a barrel, driven by escalating violence in Iraq and unabated fuel demand growth from China and India.
US light crude set a record $49.40 a barrel before easing to $48.80, up 10 cents on the day. Prices have set all-time records in all but one of the last 16 trading sessions and are up nearly $12, more than 30 percent, since the end of June.
London Brent crude also set a new record of $45.15 a barrel and at 1530 GMT was up 7 cents on the day at $44.40 a barrel.
The push to new peaks came as US warplanes pounded militia in Najaf at the heart of a two-week-old Iraqi Shiite uprising, killing at least 77 in the last 24 hours.
“Crude oil is on the run again as violence heats up in Iraq,” said brokerage Refco. “ Moqtada Sadr and his supporters have indicated a willingness to directly target oil production and transport, thus potentially endangering what oil there is coming out of the southern port.”
The fighting has compounded fears of more attacks on Iraqi oil infrastructure. Insurgents set fire on Thursday to the headquarters of the state company that operates Iraq’s southern oilfields, the South Oil Co. in Iraq’s port city of Basra.
“How can we hope for Iraqi production to come back any time soon if they can’t even secure a small target like a building?” said Deborah White, senior economist at S.G. Commodities, of the South Oil Co. headquarters.
The main southern pipeline from Iraq’s Basra oilfields has been shut since a sabotage raid on Aug. 9, curbing exports to about a million barrels daily, half the normal rates.
Analysts said a cease-fire was important because it would help Iraq bring oil exports, now at around 1 million barrels a day, back up to 1.7 million barrels a day — the output level before the latest uprising in Najaf. Still, reports that Sadr’s supporters were to hand over Imam Ali Mosque to moderate Shiite leader Ali Al-Sistani were greeted with cautious relief.
Rising oil demand has left no room among other producer countries to cope with outages in Iraq but there is little sign yet high prices are slowing the fuel demand that is fed by global economic growth.
International Monetary Fund Director Rodrigo Rato was quoted yesterday as saying he still expected world growth this year of 4.6 percent. Global oil demand growth this year is running at a 24-year high of nearly 3 percent.
China’s oil demand shows no evidence of easing despite a government bid to slow its economic boom. Chinese crude imports for July jumped 41 percent with imports for the year to end-July up 40 percent, new customs data showed yesterday.
India’s top refiner, state-run Indian Oil Corp. Ltd., said it expected national crude oil imports to rise 11 percent in 2004/05 as demand rises nearly four percent. A Petroleum Ministry official said India’s crude oil import bill was expected to rise 50 percent to $27 billion this fiscal year.
“Many Asian countries, most of whom are oil consumers, are starting to hurt,” said David Thurtell commodity strategist with Commonwealth Bank of Australia.
OPEC President Purnomo Yusgiantoro expressed concern over the continuing price rise, but said the group had not yet seen a cost-driven increase in inflation among major economies.
The Organization of the Petroleum Exporting Countries said this week it had raised July output to a level that should permit a substantial buildup in world oil inventories in the fourth quarter, but the assurances have had no impact on prices.
The group is pumping at its highest level since 1979. A report from OPEC headquarters in Vienna this week estimated it could raise production to 30.5 million barrels per day next month from 29.57 million bpd in July.