Oil prices hit $100
- Happy New Year!
Oil Touches $100 a Barrel on Supply Concern, Increased Demand
By Mark Shenk and Nesa Subrahmaniyan
Jan. 2 (Bloomberg) -- Crude oil rose to $100 a barrel for the first
time in New York as record global fuel consumption threatens to
Oil's gain, extending last year's 57 percent rally, was boosted by
forecasts that U.S. stockpiles dropped to a three-year low last
week. Unrest in Nigeria, Africa's largest oil producer, also spurred
``This is the culmination of everything that we talked about last
year,'' said John Kilduff, vice president of risk management at MF
Global Ltd. in New York. ``Various geopolitical problems have
deteriorated overnight, in particular Nigeria and Pakistan.
Commodities, and in particular oil, have become safe havens in a
Three-figure prices may bring energy costs near the tipping point
that will cause global economic growth to falter. China has more
than doubled oil use since New York crude dropped to this century's
low of $16.70 a barrel on Nov. 19, 2001. That's soaked up most of
the world's spare production capacity amid supply cuts in Nigeria,
Iraq and Venezuela.
Crude oil for February delivery rose $4.02, or 4.2 percent, to $100
a barrel at 12:10 p.m. on the New York Mercantile Exchange, the
highest since trading began in 1983. The exchange confirmed that
there was one floor trade at $100. Prices jumped $3.64, or 3.8
percent, to settle at $99.62 a barrel at 2:53 p.m., a record close.
``This is an important psychological number,'' said Rick Mueller, an
analyst with Energy Security Analysis Inc. in Wakefield,
Massachusetts. ``Everyone has been expecting this since early
Prices on Oct. 15 passed the previous all-time inflation- adjusted
record. Measured in today's dollars, oil in 1981 rose as high as
$84.73 after a decade of Middle East instability including the Arab-
Israeli war in 1973, the Iranian revolution in 1979 and the Iran-
Iraq war that began in 1980.
Oil embargoes and higher prices helped trigger recessions in
developed countries, prompting efficiency drives that sent prices
lower for two decades to as little as $10.35 a barrel on Dec. 21,
``These prices are here to stay,'' said Emil Pena, member of the
advisory board at Calgary-based Genoil Inc. and the executive
director of the Energy and Environmental Systems Institute at Rice
University in Houston. ``We have to come to grips with these high
prices. I hope this will lead to us becoming more efficient and
increase our energy education.''
Prices rose 2.9 percent last week partly because of the
assassination of Benazir Bhutto, Pakistan's former prime minister.
Pakistan borders Iran, which holds the world's second- biggest oil
reserves, and is located along the Arabian Sea, where tankers travel
before entering the Persian Gulf.
`Not One Drop'
``Not one drop of oil was disrupted when Benazir Bhutto was
assassinated last week, but prices surged,'' Mueller said.
``Anything that can is sending the market higher. That's what
happens when you have a jittery market.''
Soaring energy costs have so far failed to choke rising consumption
in developing nations, led by China and India. Asia's developing
economies will grow 9.8 percent this year, the International
Monetary Fund said in its Oct. 17 World Economic Outlook report.
``It was a different economy during the 1970s,'' said Pena, who was
an assistant secretary of energy in the Clinton administration.
``Back then we didn't have the pressure coming from growth in China
Brent crude for February settlement rose $3.99, or 4.3 percent, to
close at a record $97.84 a barrel on London's ICE Futures Europe
exchange. Futures touched $98, the highest intraday price since
trading began in 1988.
The dollar's 11 percent slide last year against the euro boosted oil
prices because it made commodities cheaper for buyers outside the
U.S. and attracted investors as a hedge against inflation.
``The consumer is going to be hit with record fuel bills during the
first quarter of the year,'' Kilduff said. ``Most of the attention
is on crude oil but the product markets are also soaring to records
and that's going to hurt.''
Heating oil for February delivery rose 9.10 cents, or 3.4 percent,
to close at a record $2.7404 a gallon in New York. Futures touched
$2.7465, the highest intraday price since trading began in 1978.
Gasoline for February delivery climbed 7.81 cents, or 3.1 percent,
to a record $2.5689. The contract touched an intraday record of
``What brought us here is still with us,'' said Harry
Tchilinguirian, an analyst at BNP Paribas SA in London. ``The
dynamic of strong winter demand, declining consumer country
inventories, and geopolitical tension against a backdrop of tight
spare capacity are all kept in place.''
A simmering dispute between the U.S. and Iran has contributed to
oil's rally. President Mahmoud Ahmadinejad has said Iran wants to
develop atomic energy to generate electricity. George W. Bush's
administration says the project is a cover for producing nuclear
A military conflict would threaten almost a quarter of global oil
supply that passes from the Persian Gulf through the Strait of
Hormuz waterway off Iran's coast.
In Nigeria, Africa's biggest oil exporter, militants have attacked
oil installations and kidnapped foreign workers since the beginning
of 2006, forcing Royal Dutch Shell Plc to halt about 500,000 barrels
a day of output, almost a quarter of the country's total.
In Venezuela, production has slumped to about 2.44 million barrels a
day from almost 3 million barrels a day in 2002, according to
Bloomberg's estimates, before President Hugo Chavez fired almost
20,000 workers who had closed the state oil company in an attempt to
overthrow the government.
Iraq's oil production has yet to reach levels attained before the
U.S.-led invasion of 2003 as the country struggles with sectarian
fighting and attacks on its energy infrastructure.
Higher prices have been cast as vindication for a theory that the
world has reached the maximum rate of oil production as explorers
fail to discover major new fields to replace aging deposits being
tapped in countries such as Saudi Arabia, Kuwait and Iran.
While Saudi Arabian Oil Minister Ali al-Naimi and Exxon Mobil Corp.
President Rex Tillerson have said oil supplies will last for
decades, energy traders are increasingly debating the amount of
Investors who back the peak-oil theory, such as Boone Pickens, a
Dallas hedge fund manager and former oil executive, have led the
price rally of the past two years. Pickens, chairman of BP Capital
LLC, correctly predicted in 2004 that oil prices would top $60 a
barrel in 2005 and in early 2006 said oil could reach $90 to $100 a
barrel within two years.