Posted by By BRAD FOSS, AP Business Writer on
WASHINGTON - Oil prices advanced closer to $50 a barrel Monday as domestic and foreign supply concerns persist amid strong global demand.
WASHINGTON - Oil prices advanced closer to $50 a barrel Monday as domestic and foreign supply concerns persist amid strong global demand.
The United States has lost more than 10 million barrels of oil production in the past two weeks due to Hurricane Ivan, which shut down and damaged platforms in the Gulf of Mexico. The blow to domestic output, while expected to be short-lived, comes as analysts worry about OPEC (news - web sites)'s inability to swiftly and sharply increase production in the event of a more significant and prolonged supply disruption.
Light crude for November delivery was 47 cents higher at $49.35 a barrel in midday trading on the New York Mercantile Exchange, and traders said they expected to see prices test the $50 level sometime soon.
"It seems like we'll get there, it's just a matter of time," said Tom Bentz, a trader at BNP Paribas Futures in New York.
Crude futures settled Friday at a record $48.88 per barrel. Adjusting for inflation, today's prices are still more than $30 below the level reached in 1981 after the Iranian revolution.
"A lot of what you're seeing is a response to Hurricane Ivan," said John Vautrain, a Singapore-based vice president for Houston-based energy consultant Purvin and Gertz.
Over the past two weeks the nation's supply of crude has fallen by 16.1 million barrels due to Ivan-related disruptions to oil production and shipping, according to the Energy Department. Oil inventories typically grow at this time of year as gasoline demand tapers off and refiners briefly shut down to perform maintenance.
When the government's weekly petroleum supply report comes out Wednesday, analysts expect to see sharp declines in the nation's inventory of oil for the third straight week.
"The Ivan damage is persisting," said John Kilduff, senior oil analyst at Fimat USA in New York.
The federal Minerals Management Service reported Friday that daily oil production in the Gulf of Mexico is 27 percent below normal at about 1.2 million barrels per day. Ten million barrels of oil, or 1.7 percent of annual production in the Gulf of Mexico, have been lost since Sept. 13, when offshore producers began evacuating crews ahead of Ivan's arrival.
Prices were strengthened Monday by reports of violence in oil-rich Nigeria, clashes in Saudi Arabia between government forces and suspected al-Qaida-linked militants and mortar attacks on the Iraqi Oil Ministry in Baghdad.
Also Monday, the Organization of Petroleum Exporting Countries admitted that its decision to boost production by 1 million barrels per day, beginning in November, has failed to calm the market.
Indeed, today's higher prices are underpinned by an increasing sense of supply tightness in global oil markets.
With global oil demand roughly 82 million barrels a day, the amount of excess oil production available is only about 1 percent, according to many analysts, leaving the industry a slim margin for error in the event of a prolonged supply interruption.
The Energy Department said Friday it would lend 1.7 million barrels of oil to refiners whose operations have been strained by Ivan, though analysts expect these fuel loans to have limited impact on prices.
The price of oil is up roughly 75 percent from a year ago, while gasoline is 22 cents per gallon more expensive than last year at $1.85 per gallon.
The high cost of jet fuel has devastated the already battered airline industry and as diesel prices continue to rise the trucking industry's profit margins are being squeezed.
"$2 per gallon diesel isn't as sexy to the public as $2 per gallon gasoline, but the added costs will certainly filter into every nook and cranny of the commercial economy," said Tom Kloza, director of Lakewood, N.J.-based Oil Price Information Service.
Many economists believe that high energy prices are already damaging growth in the United States. For example, Wells Fargo's chief economist Sung Won Sohn recently said the nation's gross domestic product will rise only 3.5 percent on an annualized basis in the second half of the year. That's down from his earlier estimates of 4.5 percent.