|Traffic | Weather | Your account||Movies | Restaurants | Today's events|
Oil prices settle at a record above $70 a barrel
The Associated Press
WASHINGTON — Oil prices settled at a record high above $70 a barrel Monday for the first time since Hurricane Katrina, rising more than $1 on concerns about supply disruptions in Nigeria and diplomatic tensions between the West and Iran over Tehran's nuclear ambitions.
So long as these and other geopolitical issues persist, analysts said it will be difficult for prices to fall very far unless there is a significant drop-off in demand, which they aren't yet seeing. In the short-term, oil prices could climb above $75, they said.
"Where the top is, is pretty hard to say at this point," said New York-based oil broker Tom Bentz.
Light sweet crude for May delivery settled Monday at $70.40 a barrel on the New York Mercantile Exchange, an increase of $1.08 from Thursday's close and 59 cents above the previous closing record set last August. The exchange was closed Friday.
Crude futures first surpassed $70 a barrel Aug. 30 in the immediate aftermath of Hurricane Katrina. Prices climbed as high as $70.85 a barrel during the day, then settled at $69.81.
On an inflation-adjusted basis, oil prices would have to rise above $90 to exceed the all-time highs set a quarter-century ago, when supplies became tight in the aftermath of a revolution in Iran and a war between Iraq and Iran. In 2005 dollars, the average price of crude in 1980 was just under $77 a barrel.
ABN Amro broker Lee Fader said the trigger for Monday's rally was "heightened fear about military action" against Iran, which has said it would go ahead with plans to enrich uranium, defying the United States, Europe and U.N. nuclear experts.
Iran says its nuclear ambitions are peaceful, but the West fears the country is intent on arming itself with nuclear weapons.
"If somehow this got resolved diplomatically," Fader said, "that would definitely take a few dollars off" the price of crude oil.
The market was also driven by the disruption of crude supplies in Nigeria, where more than half a million barrels a day of production capacity are being blocked due to militant violence.
In the Gulf of Mexico, production of more than 300,000 barrels a day remains shut because of damage from last summer's vicious hurricane season.
Underlying the nervousness about supplies in the Middle East, Africa and the U.S. is the global industry's thin margin for error.
Worldwide demand is expected to average 85 million barrels per day in 2006, leaving just 1.9 million barrels per day of excess production capacity that could be called upon in an emergency, according to Cambridge Energy Research Associates.
Cambridge oil analyst James Burkhard said this supply cushion shows no sign of growing anytime soon. "So far, we're not at the point where demand is pulling back," he said.
However, global oil demand is growing at a slower rate than last year, according to the International Energy Agency.
Copyright © 2006 The Seattle Times Company