Apr 18, 2006 10:11 pm US/Pacific
Oil Prices Hit $71 A Barrel
Global Jitters Fuel Price Rise
WASHINGTON (CBS) ―
Oil prices settled at a new high of more than $71 a barrel Tuesday as supply threats around the world overshadowed a new report from OPEC forecasting weakening global demand.
There was no fresh catalyst for Tuesday's buying, but analysts said the market psychology would likely remain bullish until there is some resolution to a variety of geopolitical uncertainties, particularly the West's nuclear dispute with Iran and output disruptions in Nigeria.
"We've got a very uncertain geopolitical environment, and we have an uncertain gasoline situation in the U.S., and all those factors are driving the energy market higher," David Pursell of Pickering Energy Partners in Houston told CBS Radio News.
"We have broken new ground today," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The market sentiment is bullish, with yesterday's record closing, momentum has been built up to cause a wave of buying."
Global Insight oil analyst Kevin Lindemer said the slowing consumption growth and swelling inventories of crude oil in the United States would typically help pull down prices, but "all of that is getting swamped right now by Iran and Nigeria."
The previous intraday high was set Aug. 30, shortly after Hurricane Katrina lashed at the U.S. Gulf Coast and wreaked havoc on the region's oil industry.
"I wouldn't be surprised to see $80. However, we do think that at $70 and upwards there will be a decline in demand simply because of the cost," added Axel Bush of London's Energy Intelligence Group.
With gasoline prices averaging $2.79 a gallon, U.S. motorists are shelling out $212 million per day more than a year ago. President Bush said Tuesday he was "concerned" about the impact this was having on American families and small businesses.
"We will feel real pain at the pump before this market tops out," said James Cordier, president of Liberty Trading in Tampa, Fla. Cordier predicted gasoline prices could rise as high as $3.50 a gallon in some parts of the country this summer.
In its latest monthly report, the Organization of Petroleum Exporting Countries on Tuesday revised its demand-growth forecast for 2006 to 1.42 million barrels a day, down from 1.46 million barrels per day in the previous report. The cartel estimates that global crude-oil demand will be slightly above 84.5 million barrels per day — about half a million barrels per day lower than the current Wall Street consensus.
OPEC expressed particular concern about the impact rising interest rates would have on consumer spending in the United States, where gasoline demand grew at a slower rate in the first quarter and could "carry over into the second half of the year."
Still, analysts said oil prices were likely to climb further as long as geopolitical risks in Iran and Nigeria posed threats to supply.
"There's no shortage at the moment, but the overall global supply-demand balance is pretty precarious," Bush said, CBS News correspondent Larry Miller reports.
Crude oil production is only barely keeping up with rising global demand, leaving a slim margin for error if there is a prolonged supply interruption, experts say.
Traders are concerned that U.S.-led efforts to stop Iran, OPEC's second-largest member, from pursuing a suspected nuclear weapons program could lead to a disruption in Persian Gulf supplies.
"If Iran were to stop selling oil, which I sincerely doubt, that would take that immediate 2½ million barrels off the market and the prices — there would be no limit. The market would panic," said Bush.
In Nigeria, militant attacks have led to the shutdown of crude oil production. Platts estimates Nigeria's output fell by 220,000 barrels per day in March, compared with February.
Also underpinning high oil prices is booming demand in emerging economies such as China and India.
"The market sentiment now is much more nervous," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. "Things haven't changed so much, but as we approach the summer driving season we'll need more crude to make gasoline and we know also that U.S. gasoline production has its limitations because of the tight refining capacity."
The increase in oil prices — and therefore gasoline prices — comes just before the start of the summer driving season in the United States. So far, it hasn't affected summer vacation plans, but it could.
"There is certainly a price point at which the consumer says 'I've had enough. I'm going to leave my Escalade in the yard and take the bus,' but so far we haven't seen that," said Pursell. "The one thing that will help moderate that price movement higher is if the consumer pushes back and just flat out doesn't consume as much."
At the White House, President Bush said he is concerned about higher fuel costs. CBS News correspondent Peter Maer reports the president blames the price surge on market jitters, as well as the seasonal change in gasoline formulas and driving habits.
"At this time of year people are beginning to drive more, getting out on the highways," he said.
With Democrats calling for an investigation of oil companies, Mr. Bush said the administration is on the case.
"The government has a responsibility to make sure that we watch very carefully, and investigate possible price gouging, and we'll do just that," the president said.
Mr. Bush also points to increased demand for gasoline. But he stopped short of calling on people to cut back on driving and brushed off a question about any need for rationing.
(© 2006 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)
