Oil Prices Soar To Record Level
Crude-oil futures closed above $42 per barrel Tuesday for the first time ever on the New York Mercantile Exchange, with traders viewing fresh violence in Saudi Arabia as a threat to output from the world's largest oil producer.
Though Saudi officials took pains to emphasize that production was not affected, concerns over disruptions to global oil supply surfaced after a weekend terror attack killed 22 people, mostly foreign oil workers, in Saudi Arabia.
"In the very least, [the attack] represents an increased threat to a vital supply source," said Michael Fitzpatrick, an analyst at Fimat USA, in a note to clients.
Crude for July delivery peaked at $42.38 per barrel on Nymex. It closed up $2.45, or 6.1 percent, at $42.33 -- the highest closing level in the 21-year history of Nymex futures trading.
"This is the biggest one-day climb for the year," said Phil Flynn, a senior analyst at Alaron Trading.
The current crude for July delivery closed up $2.50, or 6.8 percent, at $39.08 a barrel on the International Petroleum Exchange in London; the contract touched a high for the day at $39.12 per barrel.
July unleaded gasoline also rose, moving up 6.55 cents, or 5.1 percent, to close at $1.353 per gallon. Heating oil for July delivery closed at $1.0641, up 6.12 cents, or 6.1 percent.
"Even though no interruptions at oil facilities have been reported yet, the idea of more of this happening makes traders nervous," said Kevin Kerr, editor of Kwest Market Edge.
Kerr said that if the market sees more terror attacks like the one over the weekend, oil prices could reach $45 in the near term.
There aren't enough "large entities" in the market -- oil majors, independents, banks -- willing to sell into the oil strength "against the backdrop of three separate terrorist attacks on Middle East oil installations in less than two months," said Tom Kloza, chief oil analyst at the Oil Price Information Service (OPIS).
Oil traders are also eagerly awaiting an announcement from OPEC on production targets. Members of the cartel are gathering in Beirut, Lebanon and are expected to announce a quota decision on Thursday.
"OPEC is likely to issue an announcement to help quell fears somewhat but if they go too far, it could invite more terrorism at home," said Kerr.
With that in mind, cartel members "may temper their comments, which could send a message to traders that it's time for prices to go even higher," he said.
Saudi Arabia, OPEC's largest member, has already proposed that the cartel lift its current production target of 23.5 million barrels per day by more than 2 million barrels.
"Clearly, if the fig leaf of official quotas is maintained, they will have to be increased by at least 2.5 million barrels per day, otherwise the rest of the world will acknowledge that this may represent no new barrels coming to market -- enabling prices to push to new highs," said Fimat's Fitzpatrick.
At the retail level Tuesday, the U.S. average for regular unleaded stood at $2.043, down from Monday's $2.048, according to AAA's daily fuel gauge report. It saw a record high of $2.054 on Wednesday.
But "the next three weeks represent our last chance to draw a breath (build some gasoline stocks) before the real treadmill of summer demand begins," said OPIS' Kloza.
Memorial Day is typical seen as the start of the driving season, but "last week really represents an audition for the ten weeks of incredible demand that run between the Summer solstice and Labor Day week," he said.