Oil soars to 12-year high
www.globeandmail.com By ROMA LUCIW Globe and Mail Update
Crude oil prices in New York shot up Thursday to touch levels not seen since the Persian Gulf war, fuelled by the prospect of a war in Iraq and a lingering winter cold snap boosting demand for gasoline and heating oil in North America.
With U.S. oil inventories sitting near a 28-year low and U.S. President George W. Bush pushing ahead with preparations to disarm Iraq — the Middle East's third-largest oil producer — by force, worries of a supply crunch sent prices sky-high, just shy of the $40 (U.S.) a barrel level.
Russell Sheldon, a senior economist with BMO Nesbitt Burns Inc. in Toronto, said that with oil inventories dangerously low, any disruption of oil supplies could send prices soaring further.
"There isn't [a scarcity] now but we are so close that people are beginning to hoard oil. The desire to get future supplies is extremely high," he told globeandmail.com.
Thursday's rally sent crude oil prices to a 12-year high. On the New York Mercantile Exchange, crude oil for April delivery jumped as high as $39.99 before profit-taking set in. It closed down 45 cents at $37.25 a barrel.
The $39.99 price is the highest since October, 1990, when Iraq's invasion of Kuwait sent crude oil price over the $41 level.
In London, Brent prices fell 2 cents to $33.05 a barrel, after setting a two-year high of $33.80. The larger spike in U.S. oil futures shows the effect of higher heating oil prices on underlying crude prices.
U.S. government data released Wednesday showed winter demand for distillates, including heating oil, have been running 20 per cent higher than in 2002, leaving stocks down 33 per cent on the year.
"The cold spell has helped generate the low inventories that make it so clear there is no buffer supply, leaving us vulnerable," Mr. Sheldon said.
On Thursday, the UN security council was busy debating a resolution that could trigger war on Iraq.
Despite news that Iraq may be willing to cooperate with some UN demands, the U.S. and the U.K. have insisted that military force is needed to disarm the country, which exports nearly two million barrels of oil a day.
Market watchers fear a war in the Middle East could also disrupt supplies from other oil-producing countries in the region.
"Nobody can assume that the war won't have a material effect on Middle Eastern supplies. Much more than just Iraq," Mr. Sheldon said, adding that the rising oil prices threaten the global economy.
"While it is not the only deciding factor, it is an urgent factor that will probably cause the U.S. and Britain not to want to wait long to start hostilities, if they are going to," he said.
A strike in Venezuela, a major oil supplier to the U.S., has also disrupted supplies.
Meanwhile, OPEC said Thursday it was confident it could cover any shortfalls of Iraqi oil during the situation of a war without consumer countries needing to dip into emergency reserves.