NEW YORK -- Crude oil prices rose to $100 a barrel Wednesday for the first time, reaching that milestone amid an unshakeable view that global demand for oil and petroleum products will outstrip supplies.
"This is an important psychological number," Rick Mueller, an analyst with Energy Security Analysis Inc., Wakefield, Mass., told Bloomberg. "Everyone has been expecting this since early December."
Surging economies in China and India fed by oil and gasoline have sent prices soaring over the past year, while tensions in oil producing [image-nocss] nations like Nigeria and Iran have increasingly made investors nervous and invited speculators to drive prices even higher, according to an Associated Press report.
Violence in Nigeria helped give crude the final push over $100. Bands of armed men invaded Port Harcourt, the center of Nigeria's oil industry Tuesday, attacking two police stations and raiding the lobby of a major hotel. Word that several Mexican oil export ports were closed due to rough weather added to the gains, as did a report that the Organization of Petroleum Exporting Countries (OPEC) may not be able to meet its share of global oil demand by 2024.
Light, sweet crude for January delivery rose $4.02 to $100 a barrel on the New York Mercantile Exchange, according to Brenda Guzman, a Nymex spokeswoman, before slipping back to $99.27.
Oil prices are within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.
The White House on Wednesday said it would not release oil from the nation's strategic reserves to drive prices lower. "This president would not use the [Strategic Petroleum Reserve] to manipulate [prices] unless there was a true emergency," said White House press secretary Dana Perino. (click the Download Now button below to view her comments, excerpted from yesterday's White House press briefing.)
As of early November, the SPR contained 694 million barrels of oil. The government is working to fill it to its 727 million barrel capacity.
The solution to high prices lies in expanding domestic oil and gas production and increasing the nation's refining capacity, U.S. Department of Energy spokesperson Megan Barnett said.
Crude prices, which have flirted with $100 for months, have risen in recent days on supply concerns exacerbated by Turkish attacks on Kurdish rebels in northern Iraq and falling domestic inventories; however, post-holiday trading volumes were about 50% of normal Wednesday, meaning the price move was likely exaggerated by speculative buying.
"I would imagine the speculators are the biggest drivers today," Phil Flynn, an analyst at Alaron Trading Corp., Chicago, told AP.
It is hard to say whether prices would have risen as quickly on a normal trading day, Flynn said. While oil has soared on mounting supply concerns in recent months, speculators have often been cited as a reason for the swiftness of oil's climb. Moreover, many of the concerns about supply disruptions have yet to materialize, but that has not stopped buyers from driving prices higher.
"Although the [Nigerian] violence has not impacted oil flow out of the country, it has reignited supply concerns as militant attacks have reduced Nigeria's crude output by roughly 20% since 2006," said John Gerdes, an analyst at SunTrust Robinson Humphrey in a research note. Nigeria is Africa's largest oil producer.
Separately, OPEC said its member nations may not be able to meet demand as early as 2024, though OPEC also said that deadline could slide for decades if members increase production more quickly. Word that several Mexican oil export ports were closed due to rough weather added to the gains.
On top of those concerns, investors are anticipating that crude inventories fell by 1.8 million barrels last week, which would be the 7th weekly decline in a row. "[A decline] is not anything unusual for this time of year, but when it happens for 7 weeks in a row, it starts to add up," Amanda Kurzendoerfer, an analyst at Summit Energy Services Inc., Louisville, Ky., told AP.
At the pump, meanwhile, gas prices rose 0.6 cent Wednesday to a national average of $3.049 a gallon, according to AAA and the Oil Price Information Service. Gasoline prices, which typically lag the futures market, have edged higher in recent days, following oil's approach to $100.
Gasoline prices peaked at $3.227 a gallon in May as refiners faced unprecedented maintenance issues and struggled to produce enough gasoline to meet demand. A similar scenario is expected this spring, when gasoline prices could peak above $3.40 a gallon, according to the Energy Department's Energy Information Administration.
The EIA's inventory report, delayed until Thursday this week due to the New Year's holiday, is also expected to show gains in gasoline supplies and refinery activity, and a decline in supplies of distillates, which include heating oil and diesel.
In other Nymex trading Wednesday, February heating oil futures rose 8.2 cents to $2.7314 a gallon while February gasoline futures climbed 6.92 cents to $2.56 a gallon.
In London, February Brent crude rose $3.12 to $97.59 a barrel on the ICE Futures exchange.
For more details, watch for the February issue of CSP magazine.
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