Crude oil prices rose briefly above a record $99 US per barrel Wednesday as worries about inadequate winter supplies in the Northern Hemisphere and news of refinery problems stoked bullish sentiment.
Government data showed U.S. oil supplies fell unexpectedly last week and gasoline stockpiles rose, but at a slower pace than expected.
For the week ended Nov. 16, crude oil inventories fell by 1.1 million barrels, or 0.9 per cent, to 314.7 million barrels, the Energy Department's Energy Information Administration said in its weekly report.
Stockpiles of gasoline inched upward by 200,000 barrels, or 0.1 per cent, to 195.2 million barrels, which is 4.5 per cent below year-ago levels.
The declining U.S. dollar and speculation that the U.S. Federal Reserve will again cut interest rates also boosted prices. Some investors put their money into oil contracts, betting that gains in their price will offset dollar weakness.
"The market is now really looking at $100 a barrel as the next target to hit," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The fact that we are having this surge in pricing in this short trading week underscores the strength of this bull run for oil."
Light, sweet crude for January delivery fell 74 cents to $97.29 US a barrel on the New York Mercantile Exchange on Wednesday afternoon, after earlier rising as high as $99.29 US a barrel in electronic trading to break the previous intraday record of $98.62 US set last week.
Commodities show gains
The contract surged $3.39 US during the floor session Tuesday in New York to a record close of $98.03 US a barrel. The Nymex will be closed on Thursday for Thanksgiving and close early on Friday.
"There were strong gains in almost all commodities (Tuesday), hence we will view the rise of the oil markets in that global context," said Olivier Jakob at Petromatrix in Switzerland. "The mythical $100 per barrel is of course within reach for today with or without the help of the weekly statistics."
Energy futures got a boost Tuesday on news of problems at two oil facilities. A Valero Energy Corp. refinery in Memphis, Tenn., that processes 180,000 barrels of crude a day has shut down for 10 days of unplanned maintenance. Also, a Royal Dutch Shell PLC plant that converts bitumen from Alberta's oil sands region into 155,000 barrels a day of synthetic crude oil was temporarily shut down due to a fire.
Beyond these temporary concerns, investors are anxious that as global demand for energy grows, fuelled by China and India's rapid development, oil supplies won't be able to keep up.
Currently, oil producers are turning out about 85 million barrels a day, while the U.S. Department of Energy says consumption is between 85 million and 86 million barrels a day.
Demand 'powering forward' amid tight supply
"The long-term underlying trend is that demand is powering forward and the supply situation looks tight," said Jeff Brown, managing director and chief economist at FACTS Global Energy in Singapore.
Oil prices also got support after the Fed said it thinks U.S. economic growth will slow next year to between 1.8 per cent and 2.5 per cent, less than the Fed's previous projections. It also projected that U.S. inflation should fall next year to an increase of between 1.8 per cent and 2.1 per cent.
That could mean the Fed will cut interest rates further, and that could weigh on the dollar. On Tuesday, the euro hit an all-time high against the dollar, breaking through the $1.48 US mark.
"When the U.S. dollar hit a record low, oil also surged ahead. It's been an inverse relationship," Shum said. "Also, the Fed indicating worries about the U.S. economy has caused worry that the Fed will cut interest rates."
Crude prices are within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 US a barrel then would be worth $96 to $103 US or more today.
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