NEW YORK, 21 September 2007 — Oil surged to $84 a barrel yesterday in the seventh straight record-breaking session as companies shut Gulf of Mexico output on forecasts a tropical depression churning through the region would become a storm.
US crude settled up $1.39 at $83.32 a barrel after touching an all time high of $84.10 earlier. London Brent settled up 62 cents at $79.09 a barrel.
Oil has traded above $80 for the past week in part due to concerns about US supplies after government data showed crude stocks in the top consumer fell for the fourth straight week. A tropical depression blowing into the Gulf of Mexico exacerbated worries as companies shut offshore oil and natural gas output on expectations it would become a tropical storm.
Energy companies have shut over 360,100 barrels of oil per day, some 27.7 percent, of Gulf crude oil production and 16.7 percent of natural gas production on the storm threat, the US Minerals Management Service said yesterday.
“Energy companies shutting down Gulf of Mexico production and Fed Chief Bernanke’s optimistic words on the economy were supportive for this latest record rise in crude futures,” said Phil Flynn, analyst at Alaron Trading in Chicago.
Oil has risen by a third this year, driven by worries of fuel shortages during the Northern Hemisphere winter, supply risks in producer countries, the weaker dollar and rising money flows from investors.
The recent surge to record prices came after producer group OPEC agreed to add 500,000 barrels per day (bpd) to global markets to help calm consumer nation concerns.
While analysts are divided over whether prices can sustain current levels, some OPEC officials said oil will not stay above $80 for long.
“This situation is not stable and cannot be permanent,” said Hossein Kazempour Ardebili, Iran’s OPEC governor.
Wednesday’s rise to record highs came after data showed crude oil stocks in the United States fell by 3.8 million barrels last week, nearly twice the 2 million-barrel draw expected in a Reuters poll of analysts.
“The data reinforce concerns that, even if a slowdown in the US economy trimmed domestic oil demand growth, supply constraints both upstream and downstream might extend the recent tightening of (the oil market),” Fimat analyst Antoine Halff said.
In London, the price of Brent North Sea crude for November delivery fell 24 cents to $78.23 per barrel.
Brent had hit $78.60 Tuesday — not far off its record high of 78.64 dollars that was struck in August 2006.
Speaking to Iranian radio on Thursday, Iran’s representative to the Organization of Petroleum Countries agreed that 100-dollar oil was possible, but did not give a date as to when it could occur.
“Yes, any outcome is possible. If the explosions in Mexico continue and there is severe cold and if some nations in OPEC experience turbulent political conditions and a lot of other issues can make the oil prices go even higher,” Hossein Kazempour Ardebili said. There have been some outages at Mexican energy facilities because of hurricanes during September in the US Gulf of Mexico.
Highlighting supply concerns, the DOE said on Wednesday that US crude inventories plunged by 3.8 million barrels to 318.8 million barrels in the week ending Sept. 14. That marked the 10th consecutive weekly drop and was almost double analysts’ consensus forecasts for a fall of about 2.0 million barrels.
US gasoline stockpiles rose by 400,000 barrels last week, confounding market expectations for a drop of 1.0 million.
Distillates, which include diesel and heating fuel, advanced by 1.5 million barrels, which tallied with forecasts for a 1.23-million-barrel gain.
“We have the usual mix of factors — weather, geopolitics and current tightness in supply supporting prices,” said Victor Shum, a Singapore-based analyst with energy consultancy Purvin and Gertz.
“In the near term, there is limited downside risks to the oil market. We’ve got really strong oil market fundamentals and many investors have returned to the market because of these fundamentals.” Meanwhile, the Federal Reserve’s decision Tuesday to cut key interest rates by a bigger-than-expected 50 basis points to boost the US economy has also perked up the oil market.
“The feeling is that if US economic growth remains healthy, oil demand will also remain good,” Shum said.
