Oil rises to nearly $114 a barrel
04/15/2008
By Jad Mouawad
International Herald Tribune
Published: April 15, 2008
NEW YORK: Oil prices surged to a new high Tuesday, rising to nearly $114 a barrel, as scattered pipeline interruptions and a weak dollar put pressure on a tight global market.
Crude oil futures jumped more than $2 to $113.93 a barrel on the New York Mercantile Exchange. Oil prices have risen more than 18 percent since the beginning of the year.
The Tuesday price set a record for oil and helped push gasoline to fresh highs. Retail gasoline averaged $3.39 a gallon, according to AAA, the automotive group. That is more than 50 cents a gallon higher than a year ago. Diesel prices have seen even bigger gains. Diesel now averages $4.12 a gallon, according to AAA, $1.18 more than last year.
The immediate driver behind higher oil prices has been a string of interruptions in pipeline operations in Nigeria and the Caspian region, as well as a shutdown of Mexican exporter terminals in the Gulf Coast because of bad weather. While small, these interruptions underlined how reactive the market is to the slightest disruption in supplies.
Despite slowing economic growth worldwide, in particular in the United States, the rise in energy prices is showing no signs of slowing. The International Monetary Fund recently slashed its global growth forecast as financial crises spread and warned that the United States economy might shrink.
The darker outlook prompted the International Energy Agency, a forecaster for developed countries, to cut its estimates for global oil demand this year by nearly half a million barrels a day. The energy agency expects oil consumption to grow by 1.3 million barrels a day in 2008, to 87.2 million barrels a day. That is 460,000 barrels a day less than its previous forecast.
Higher energy costs are hurting business and consumers alike, and are amplifying the woes of an economy already ailing from a housing slump and a financial crisis. As a result, many analysts expect gasoline consumption to drop this year. The United States is the world's top oil consumer, accounting for nearly a quarter of global demand.
Oil producers are also facing a tougher time increasing their supplies. Russian production is reaching a plateau after its post-Soviet recovery, for example. Mexican production is declining because of insufficient investments by Pemex, its state-owned oil company.
But this week also brought some potentially positive news for the future growth in supplies. The head of the Brazilian national oil agency suggested that the country had discovered a massive offshore oil field that could potentially be three times bigger than the country's current proven reserves.
But little relief is expected in the short term. OPEC does not want to step in and bring prices down by increasing its production, as it expects oil demand to fall in coming months. The oil group accounts for 40 percent of the world's oil exports.
Members of the Organization of Petroleum Exporting Countries consider the global market well stocked with oil and believe that there is no shortage anywhere and that prices are being conditioned more by market psychology than fundamental factors.
The Saudi Arabian oil minister, Ali al-Naimi, suggested last week that the current oil prices had little to do with global supplies.
"I am not going to pull back, I'm not going to dump crude on the market," he told reporters last week, according to Reuters.
On Saturday, King Abdullah of Saudi Arabia also suggested that new oil discoveries in the kingdom would remain untapped to preserve the country's wealth for future generations, according to various news reports. "Let them remain in the ground for our children and grandchildren who need them," the king said in a speech, according the official Saudi Press Agency.