"How high is the oil Momma? 55 Dollars and Risin'. How high is the oil
Poppa? 80 Dollars and Risin'."
................................................................
Oil Briefly Rises Above $55 and Seems Likely to Stay High
By JAD MOUAWAD
Published: March 4, 2005
Oil prices briefly rose above $55 a barrel yesterday as investors bet that
rising demand and tight supplies would keep prices high this year.
On the New York Mercantile Exchange, crude-oil contracts for April delivery
closed at $53.57 a barrel, up 52 cents, paring some of their gains after
falling short of the record $55.67 a barrel reached in October. Gasoline
futures rose 1.6 percent to close at a record $1.5075 a gallon.
Oil prices have doubled in the last two years as producers struggle to meet
rising demand from Asia and the United States. Traders worry that there is
not enough spare capacity to make up for sudden shortages.
Oil analysts said the likelihood of production interruptions and higher
prices this year had prompted speculative traders to increase investments in
commodities like crude oil and gasoline.
Investors were encouraged by recent comments from major oil producers saying
that prices would remain high this year. The strongest declaration came from
Ali al-Naimi, Saudi Arabia's oil minister, who recently indicated that he
expected that prices would range from $40 to $50 a barrel throughout the
year.
And yesterday, Adnan Shihab-Eldin, acting secretary general of the
Organization of the Petroleum Exporting Countries, told a Kuwaiti newspaper
that he could not rule out the possibility that prices could spike to $80 a
barrel in the event of a sudden interruption in production.
"It's a brave new world in the energy markets," said Thomas Bentz, an oil
broker with BNP Paribas in New York. "Demand continues to be strong, and
traders are looking at whether it will outstrip supplies later this year.
That's why you've had this huge capital influx and why hedge funds are
coming into the market."
For example, production from Iraq has not recovered since the end of the war
because it is the target of attacks from insurgents; in Russia, the
government's intervention has hurt production growth.
"With low inventory levels plus very little spare crude oil production or
refining capacity, the market's ability to absorb supply-side shocks is at
its lowest," Kevin Norrish, an analyst at Barclays Capital, wrote in a note
to investors. "Even $80 a barrel could look modest" if there was major
interruption in crude supplies, he said.
OPEC ministers are scheduled to meet on March 16 in Iran to determine the
group's output levels for the second quarter. A few weeks ago,
representatives from OPEC countries raised the prospect of a cut in
production to anticipate a slowdown in demand in the second quarter. In
recent days, some oil ministers said that a cut in production was unlikely
with prices at current levels.
Still, there has not been much pressure on OPEC to increase production at a
time when the American economy, which consumes a quarter of the world's oil,
does not seem to have been hurt by the current prices.
Samuel W. Bodman, the secretary of energy, told a Senate panel yesterday
that there was not much he could do to press OPEC. "The capability of any
representative of this government to influence the members of OPEC is
limited," he told the Senate Energy and Natural Resources Committee.
Mr. Bodman, who was asked why he did not take a more aggressive stance,
said: "I do expect to play a role and continue to play a role. But I have to
tell you I do not control what OPEC does."
Still, it is not clear what OPEC would do even if pressed to act. OPEC
countries have been increasing their output to push prices down in recent
weeks and are now producing close to their maximum capacity of 30 million
barrels a day.
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