- The Washington Times - Tuesday, September 28, 2004


Crude oil surpassed $50 a barrel for the first time, and analysts said yesterday prices could keep rising because of a sharp increase in global demand, tight supplies and threats to output in petroleum-producing nations such as Iraq and Nigeria.

Homeowners and energy-intensive industries could feel the sting from high oil prices as seasonal demand picks up this winter. There already is evidence that the supply disruptions caused by Hurricane Ivan are making it more costly to drive.

The 75 percent increase in the price of oil in the past year also promises to heat up as a political issue, with a little more than a month left until the presidential election.

Crude futures first hit $50 a barrel in after-hours trading late Monday, spurred higher by reports that rebels in Nigeria continue to battle for control of the vast southern oil fields in the world’s seventh-largest exporter.

A unit of Royal Dutch/Shell Group, which accounts for roughly half of Nigeria’s daily production of 2.5 million barrels, said yesterday that insecurity in the region forced it to close an oil-flow station in the Niger Delta that pumps 28,000 barrels a day.

Also yesterday, Saudi Arabia pledged to boost the limits of its daily oil production by a half-million barrels, bringing its output to 11 million barrels, but the move failed to calm markets because it does not mean that actual supplies would be added anytime soon.

Light crude for November delivery rose 26 cents to $49.90 to a new settlement high on the New York Mercantile Exchange after trading as high as $50.20 earlier in the day.

Adjusting for inflation, today’s prices are still about $30 a barrel below the level reached in 1981 after the Iranian revolution. Even so, the United States is on pace to spend an extra $68 billion on oil this year, or 30 percent more than last year. That calculation is based on analysts’ estimates of an average oil price of $40-per-barrel in 2004, compared with $31 in 2003, as well as slightly higher demand of more than 20 million barrels per day.

This year’s surge in prices has resulted in “a major redistribution of income from oil consumers to oil producers” and has been a drag on the economy, said Nigel Gault, an economist at Global Insight.

Mr. Gault said every $10-per-barrel increase in the price of oil causes U.S. economic growth to slow by 0.3 percent per year. The financial blow is mitigated by the fact that the country is more energy-efficient than it was during the oil crises of the 1970s.

But Global Insight forecasts that by sapping some of the country’s economic strength, high oil prices have made the presidential election a closer race.

Underpinning today’s high oil prices is the fact that the world’s supply buffer, or excess capacity, is just 1 percent of daily global demand of 82 million barrels. That leaves the industry little breathing room in the event of a prolonged supply interruption, and it is why prices have climbed higher each time an Iraqi oil pipeline is attacked or Russian oil giant Yukos warns that its output might suffer because of a big back-tax bill.

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