NEW YORK, 19 September 2007 — Oil surged to a peak over $82 a barrel yesterday, the fifth record in as many trading days, on concerns of a winter supply squeeze in the world’s top energy consumer the United States. A US Federal Reserve decision to cut interest rates by 50 basis points — more than some investors had expected — also supported oil and other commodities by raising expectations the economy will weather a credit crisis.
“When the economy expands, so does oil demand,” said Peter Beutel, president of Cameron Hanover in Connecticut.
US crude was up $1.59 to a record 82.16 a barrel at 1855 GMT in electronic trade after settling up 94 cents to $81.51 in the regular session. London Brent crude was up $1.20 at $78.18.
Hurricane and other supply risks, shrinking US fuel inventories and fund flows into energy from poorly performing equity markets have fueled a rally of more than 30 percent in oil prices so far this year. Though crude prices have quadrupled since 2002, when adjusted for inflation the price is below the $90 peaks of the Iranian Revolution in 1979.
The Organization of Petroleum Exporting Countries agreed last week to boost output by 500,000 barrels per day (bpd) from November, but the move has failed to soothe consumer concerns.
“The winter season will look remarkably tight,” said Harry Tchilinguirian, senior oil market analyst at BNP Paribas. “The OPEC increase will fall short of the needs of the market come wintertime.”
Some OPEC members say the exporters may have to pump more if oil stays above $80 for long. “If the high price lasts, say, more than 15 to 20 days, there would at least be consultations between ministers. They’d have to do something about it,” an OPEC source told Reuters.
The US Federal Reserve, meanwhile, trimmed benchmark interest rates by 50 basis points yesterday to prevent a credit squeeze from pulling the economy into a recession, which analysts say would dampen oil demand.
“This confirms that the US economy is fragile and attempts to avoid a full recession by cutting interest rates may or may not be successful. But this shows that the Fed is taking the possibility of a recession seriously,” said Tim Evans, oil analyst with Citigroup Global Markets.
Goldman Sachs on Monday forecast US oil prices would surge to $85 a barrel by the end of the year, up $13 from its previous forecast, and said crude could climb as high as $90 due to tight supplies.