NEW YORK, 1 November 2007 — Oil surged more than 4 percent to a record over $94 a barrel yesterday after a steep drop in US inventories fueled winter supply concerns and the US Federal Reserve cut interest rates.
US oil jumped $4.00 to $94.38 a barrel by 1850 GMT after striking a record $94.74 earlier, countering a $4 drop on Tuesday. London Brent gained $3.02 to $90.46 a barrel.
US crude oil stocks fell 3.9 million barrels in the week to Oct. 26, government data showed, countering expectations for a build ahead of the Northern Hemisphere winter.
The draw was led by a huge tumble in stockpiles at the Cushing, Oklahoma, delivery point for the NYMEX oil contract as companies drained storage tanks. “Given the economics of what it takes to store oil, it makes no sense to hold onto inventory right now,” said Stephen Schork, president of The Schork Report. “Storage owners are taking the economically prudent step and dumping inventories.” Retail heating oil prices in top oil consumer the United States shot to a record $2.95 a gallon last week on the winter supply worries. Further price support came as the dollar plummeted to a record low against the euro. The weak greenback has boosted many dollar-denominated commodities in recent weeks.
Oil roared higher ahead of the Fed’s decision to lower benchmark costs by a quarter of a percent on yesterday to bolster the world’s biggest economy against the threat of the growing credit crisis.
“The energy markets had assumed a quarter percentage point interest rate cut by the Fed, but there were still some that expected the cut to be half a percentage point,” said Tom Knight of Truman Arnold. “While there may be some selling, I expect crude prices to firm here, after a $4 rise.”
The price increase has spurred US government officials to call on OPEC to increase output, but OPEC officials maintain speculator buying has driven up prices, not a supply shortage. “OPEC is not very happy with the existing situation that shows a lack of stability in world oil markets,” Javad Yarjani, head of OPEC affairs at Iran’s Oil Ministry, was quoted as saying. He warned that geopolitical concerns had created a “bubble” in oil prices which would burst one day.