← Autodidact Archive · Original Dissent · Gregz
Thread ID: 14005 | Posts: 2 | Started: 2004-06-02
2004-06-02 01:51 | User Profile
By PATRICK BRETHOUR
Calgary ââ¬â Crude oil roared past $42 (U.S.) a barrel to its highest level on record Tuesday, even as traders mused that OPEC may have to temporarily scrap its decades-old quota system tomorrow in order to counter the fear factor from terror attacks in Saudi Arabia.
In the first day of trading since militants attacked oil facilities in the most important OPEC member, prices soared as high as $42.38 (U.S.) a barrel, ending the session up $2.45 to $42.33 ââ¬â the highest intraday and closing level for oil since futures trading began on the New York Mercantile Exchange in 1983.
ââ¬ÅThis market is trading on fears and headlines,ââ¬Â said Citigroup analyst Kyle Cooper in Houston, adding that another attack could fuel another dramatic jump in crude prices, despite there being sufficient supplies of oil.
The wholesale price of gasoline on futures markets shot up along with that of crude, as did the cost of natural gas and heating oil, now at its highest level in a year. Separately, Canadian pump prices edged up to a new national high of 90.6 cents (Canadian) a litre, 0.2 cents higher than the record set in mid-May, according to M.J. Ervin & Associates.
Oil prices retreated last week in the face of repeated vows by Saudi Arabia to secure an agreement tomorrow from other members of the Organization of Petroleum Exporting Countries to increase production quotas and actual output.
But analysts said Tuesday that those measures may not be enough to quell growing panic in the market, which is becoming alarmed by attacks on Saudi Arabia, the most influential OPEC member, and the only member of the cartel with significant spare production capacity.
ââ¬ÅOPEC will do what it can to keep oil prices down. But I think that they realize that some things are beyond their control,ââ¬Â said Phil Flynn, senior analyst at Alaron Trading Corp. in Chicago.
He suggested that OPEC may need to make a dramatic gesture and announce the suspension of production quotas ââ¬â allowing each member to pump as much oil as they are able. ââ¬ÅI would not be surprised to see that.ââ¬Â
For decades, OPEC has used the quota system to massage the oil market, generally trying to keep prices in a range that keeps its members' income high, without undermining global economic growth. (The oil embargo of 1973 was a notable exception.)
The quota system has always been a rule observed mostly in the breach, with cheating a way of life for many OPEC members. But after oil prices crashed in 1998, the cartel had succeeded in imposing a measure of discipline, enough so that production and quotas moved on largely parallel tracks.
Currently, OPEC is producing about 25.5 million barrels a day, two million more than the official quota of 23.5 million b/d. With most OPEC members producing as much oil as they can, a suspension of quotas would mostly involve Saudi Arabia gearing up its output.
An OPEC delegate said a suspension of quotas will likely be discussed at tomorrow's meeting, but warned that there is little enthusiasm for such a measure outside of Saudi Arabia. ââ¬ÅIt's possible but I think there will be a lot of opposition to giving Saudi carte blanche to do what it likes independent of the rest,ââ¬Â the delegate said.
Mr. Flynn said the market will also be looking for a strong statement from OPEC that it is increasing security to safeguard the flow of oil.
Kuwaiti Energy Minister Ahmed Fahd al-Ahmad al-Sabah took a step in that direction Tuesday, announcing that the country will boost security at its installations.
OPEC is expected to announce a quota increase of 2.5 million b/d after its meeting in Beirut tomorrow, with a senior cartel official saying Tuesday that actual production could rise by one million b/d.
Even if crude prices continue to rise, they may have only a moderate effect on retail gasoline prices, said Michael Ervin, president of M.J. Ervin. Much of the recent rise in pump prices has come from the inability of North American refineries to produce gasoline quickly enough, with the runup in crude costs playing a secondary role. Gasoline inventories in Canada and the United States are beginning to rebound, he said, pointing to a drop in the wholesale cost over the past week. That may mean that the downward pressure from growing inventories may largely offset the upward pressure on prices from rising crude, Mr. Ervin said.
In the United States, pump prices edged downward for the first time in five weeks, the U.S. Energy Department said Tuesday. The average fell 1.3 cents (U.S.) to $2.051 a gallon, although it is still nearly 40 per cent higher than a year ago.
The highest U.S. gas price was $2.99 a gallon in March, 1981, adjusted for inflation in 2004 dollars, according to the department.
2004-06-02 12:08 | User Profile
Russia's rolling in the dough.
I just don't get it. I really don't.
WHY IS THE DOLLAR SO BLOODY HIGH?
Sorry for shouting.
Walter