LONDON, 5 May 2004 — World oil prices surged yesterday to levels last seen over 13 years ago amid worries about bloodshed in the Middle East and tight supplies, casting a shadow over prospects for the global economy.
Traders fretted about the security of Gulf supplies after the terrorist attack at an oil facility in Yanbu over the weekend which left 10 dead, as well as the threat of gasoline shortages in the United States.
The price of benchmark Brent North Sea crude oil for June delivery leapt $1.44 to $35.92 a barrel in late London trading, levels not seen since October 1990 in the run-up to the Gulf War.
Rising Chinese demand and low US fuel inventories have fueled oil’s rally, which has pushed prices up by $12 a barrel, or more than 50 percent, from this time last year.
Fears that new US environmental rules may stop refiners producing enough gasoline to meet holiday driving demand, as well as a spate of unplanned refinery shutdowns in both the US and Europe have fueled oil’s price rise.
OPEC oil ministers, who control around 40 percent of world exports, have said that the price surge is driven by forces out of their hands.
“The market is very strong, led up by gasoline because of continued supply worries for gasoline in the US, (and) because of continued uncertainty and concerns about supply disruption in the Middle East — in Iraq and Saudi Arabia,” said Prudential Bache broker Christopher Bellew.
New York’s benchmark light sweet crude for delivery in June rose 49 cents to $38.70 a barrel in early deals, having jumped Monday to the highest close since Oct. 16, 1990.
“To be honest $40 seems to be a distinct possibility for American crude oil,” said Robert Laughlin, a director at brokerage GNI-Man Financial.
“There have been a whole series of what appear to be fights that are going on that I think have (made) people worried about Saudi Arabia, to say nothing of the fact that Iraq is just a complete mess,” said Adam Sieminski, an oil market analyst at Deutsche Bank.
Traders were also worried about the prospect of shortages of gasoline, or petrol, during the so-called US “summer driving” season, while China’s thirst for oil is putting extra pressure under prices.
“With supplies limited and demand rising on the back of a very strong global economic recovery, you’ve got Brent at $35,” said Sieminski.
Rising oil prices have raised concerns about the impact of higher energy rates on economic growth, particularly in the United States. While the US engine of economic growth is now picking up steam, high oil prices push up costs for many companies, particularly airlines and other manufacturers, while also fueling price pressures.
“The underlying forces are at work and economic growth, if prices continue at these high levels, will weaken, but it takes time,” said Leo Drollas, chief economist at the Center for Global Energy Studies.
Some analysts argue that the world economy is more resilient to high energy prices nowadays.
However, the International Energy Agency warned this week that oil prices do still matter to the health of the global economy.
“Higher oil prices since 1999 — partly the result of OPEC supply-management policies — contributed to the global economic downturn in 2000-2001 and are dampening the current cyclical upturn,” said the Paris-based agency, which represents the interests of oil-importing nations.
