Oil Prices Continue Run as Futures Hit 14-Month High
The surge in oil prices continued Wednesday, surprising many industry observers and prompting some to reassess the price outlook. Futures contracts for crude oil settled above $19 a barrel at their highest level in 14 months.
Trading on the New York Mercantile Exchange drove oil prices 53% above the level reached as recently as Oct. 5, before the Organization of Petroleum Exporting Countries forged its latest production-cutting agreement.
Many analysts believe that the steady price run-up is at or near its peak, particularly as spring approaches and a seasonal decline in oil demand sets in. Some expect prices to tumble soon, especially if OPEC’s newest stance of unity appears to weaken.
But some were cautiously adding $1 or $2 a barrel to their full-year price forecasts.
“We’ve been surprised by the extent of the price run-up, but not by the pattern,” said Thomas Burns, manager of the economic staff at Chevron Corp. in San Francisco.
Although OPEC’s apparent success to date in following the accord is an important reason for the big rise, economists said other factors--especially the consistent evidence that the world is using far more oil than was realized--are also playing a role.
The price spike was not the only event pointing to a strengthening oil market Wednesday. The American Petroleum Institute reported that crude oil stocks dropped 4.4 million barrels in the week ending Jan. 15 to 329 million, or 19 million barrels less than a year ago.
This continues a pattern and bolsters recent signals that demand for oil is stronger than expected. The International Energy Agency, in the wake of upward revisions of forecasts by private economists, recently boosted its estimate of last year’s worldwide oil demand growth to 2.6% from 1.8%--a difference of about 400,000 barrels a day. Others put it higher.
Coming at a time OPEC producers are thought to be cutting production by an estimated 16% under terms of the cartel’s agreement that took effect Jan. 1, the events suggest a tightening of supplies worldwide.
In addition, noted analyst Paul D. Mlotok at Salomon Bros. in New York, the loss of production at several oil rigs in Britain’s North Sea--including the disastrous explosion aboard an Occidental Petroleum platform--has taken 400,000 barrels a day off the market.
“Everything is happening at once,” said Mlotok. While the North Sea problems and the OPEC unity might not last forever, he said, “the increased demand has ongoing significance.”
Wednesday’s price for West Texas Intermediate, the benchmark U.S. crude, ended 31 cents higher at $19.26 a barrel for the current February contract. The low of recent months was $12.60 a barrel in early October.
The new cooperation within OPEC has prompted another effort at enlisting non-OPEC oil-producing nations in the cause of cutting production worldwide. Experts from several nations, including Mexico, Egypt, Oman and others, are to meet late this month in London to discuss such a plan.