Crude Oil Prices Hit New High
Crude oil prices breached the $54 mark Tuesday to reach a new all-time high, fueled by continuing worries over supply in Nigeria and reduced output in the hurricane-hobbled Gulf of Mexico.
Traders are also concerned over troubled Russian oil giant Yukos, which has been hit with a fresh tax bill that could derail output amid fears that supplies from Brazil and Iraq might also be disrupted.
Crude for November delivery on the New York Mercantile Exchange reached a new high of $54.10, after settling overnight at $53.64. Brent crude for November broke through the $51 mark for the first time to reach $51.10.
While oil prices are about 80 percent higher than a year ago, they are more than $26 below the peak inflation-adjusted price reached in 1981. Underlying daily jitters is that excess available output is scant, with global production capacity only about 1 percent above the daily supply of 82 million barrels.
"It would be imprudent for the public to expect that all this would be resolved anytime soon. We have to adopt a mentality that we have to live with these prices," said John Vautrain, vice president of Texas-headquartered energy consultants Purvin & Gertz in Singapore.
In Nigeria, a nationwide strike to protest higher fuel prices began Monday, shutting down most of Lagos, Nigeria's commercial capital. The country's output of 2.5 million barrels per day has not been affected yet but traders remained concerned.
Nigeria produces low-sulfur crude - currently in high demand - and analysts said the prospect of losing output there is particularly worrisome.
The four-day strike takes place just after a militia group and the government reached a tentative peace deal.
Previous efforts by the Organization of Petroleum Exporting Countries, which already produces close to 30 million barrels daily, to boost output have involved crude with a high-sulfur content, which is less desirable for refiners.
"People are nervous and starting to focus on winter weather," said Vautrain.
"OPEC as a whole has seen production capacity dropping by nearly one-quarter in the past two decades," said Morgan Stanley chief Asia economist Andy Xie in his latest research report. "Until 2 years ago, OPEC was sitting on a comfortable level of spare capacity."
In Russia, a court ruled that Yukos must pay an additional US$1.34 billion in fines and penalties as part of a US$4.1 billion back-tax claim for 2001, raising the company's total liabilities to about US$7.5 billion. The company has warned that its production will suffer if the government continues its aggressive pursuit of back tax claims.
The market is also closely monitoring the slow recovery of production in the Gulf of Mexico, where 17 million barrels of oil production have been lost since Hurricane Ivan whipped through the region mid September.
With the market already on edge, new fears entered into play Tuesday.
Brazil's Oil Workers Federation recommended members vote for a five-day strike after state oil firm Petroleo Brasileiro SA failed to meet the union's wage demands. Dow Jones Newswires also reported that Iraq's oil exports were halted temporarily from its southern terminal last week due to insurgent attacks and the fires they started.
Tuesday, Australian carrier Qantas said it would make a decision on a passenger surcharge to cope with rising jet fuel prices within 48 hours while Japanese finance minister Sadakazu Tanigaki repeated warnings the global economic recovery is at risk over the continued surge.
"If the global economy grows by 3.6 percent as we currently forecast, the world may need an additional 2 million barrels of crude per day. We estimate that global supply will rise by about one and a half million barrels per day at best," added Xie.
By Yeoh En-Lai