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Speculation, tensions push oil above $86

From Times Staff and Wire Reports

Tensions between Turkey and Iraq, combined with expectations of a winter supply crunch, have helped fuel a wave of speculative buying that sent crude oil to an all-time high above $86 a barrel Monday in New York futures trading. But any race toward the $100 mark is likely to face fierce resistance from supply-and-demand fundamentals, analysts said.

Californians are feeling the price run-up at the pump more than other drivers. The statewide average price for a gallon of self-serve regular gasoline rose 5.7 cents over last week’s level to $3.053 a gallon Monday, according to a government survey. The jump pushed the statewide average back above $3 and marked the sixth straight increase in California, even as demand has been slumping in the state.

Nationwide, the average price of gasoline dropped by less than a penny to $2.762 a gallon Monday, the weekly survey showed. October is a relatively low-demand period and a time when gasoline prices typically drop, but record-high oil prices have pushed pump prices more than 50 cents above year-ago levels in many parts of the country.

Monday’s leap in oil prices has some worried that the cost of crude could continue to rise, cutting into consumers’ purchasing power and perhaps sapping the economy. But analysts said the current supply-and-demand projections for oil may not support a jump into the triple digits unless geopolitical tensions erupt into an actual event that could disrupt supplies.

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“It would take much more than what we currently see on the underlying fundamentals. It would take an event related to Iran or a flare up of military activity on the northern Iraq border,” said Jim Ritterbusch, president of Ritterbusch & Associates, an oil trading advisory firm. “Right now, it is difficult for me to make a case for that kind of a rally, and if we did see that kind of rally, it would be short-lived and represent a speculative bubble.”

Oil’s climb Monday was spurred by rising tensions between Turkey and Kurdish separatists in northern Iraq. Those strains have dimmed the prospects for a recovery of Iraqi oil exports.

Analysts have been concerned since about July that oil supplies may be unable to keep pace with the Northern Hemisphere’s winter heating demand, and some feared prices could rise to near $100.

“The latest rally is in some ways the market catching up with tightening fundamentals that could have been predicted months ago,” said Antoine Halff of Fimat. “The market could have some steam left, although if you are forward-looking, the next step could be a retracement.”

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Andy Weathers, director of Terra Verte Trading, said Monday that the price of U.S. oil already may have reached its short-term ceiling. “I’m thinking that $86 or $87 is pretty close to the top with the information we have right now,” said Weathers, of the Houston-based fund.

Oil prices have more than quadrupled since 2002 as demand from China and other emerging markets stretched supplies. But forecasts for tighter markets prompted OPEC last month to agree to hike production to help head off a shortfall.

Analysts said a drive toward $100 probably would trigger even more supply to help cool down prices, while seasonal refinery work could also help cap prices.

“It looks to us like oil is a $70-$80 commodity,” said Adam Robinson, analyst at Lehman Bros.

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