Oil once again nears US$100 a barrel

Analysts said crude futures could break through that US$100 a barrel level if the U.S. government reports crude inventories fell by more than expected in a data release expected later Thursday.

“We’re so close to US$100 right now,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “If the U.S. inventory report indeed shows stock draws, and particularly bigger than expected draws, plus a heightening of geopolitical risks and a falling U.S. dollar, all these factors could push pricing beyond US$100.”

Light, sweet crude for February delivery rose 14 cents to US$99.76 a barrel by early afternoon in Europe in electronic trading on the New York Mercantile Exchange.

In London, Brent crude futures shed 3 cents to fetch US$97.81 a barrel on the ICE Futures exchange.

The contract rose US$4.02 to US$100 a barrel Wednesday before slipping back to settle at a record close of US$99.62, up US$3.64.

In other Nymex trading, heating oil and gasoline futures remained essentially steady at US$2.7387 a gallon (3.8 liters) and US$2.5685 a gallon. Natural gas futures added 2 cents to US$7.870 per 1,000 cubic feet.

Investors are anticipating that U.S. crude inventories fell by 1.7 million barrels last week, which would be the seventh straight weekly drop.

The U.S. Energy Information Administration’s inventory report, delayed until Thursday this week due to the New Year’s holiday, is also expected to show gains in gasoline supplies and refinery activity, and a decline in supplies of distillates, which include heating oil and diesel.

In a research note, Vienna’s PVM Oil Associates noted signs that U.S. gasoline demand is declining due to high prices, saying that in the week ending Monday consumption was some 9.5 million barrels per day, which is about 5.5 percent lower than a year ago.

Oil and gasoline demand in the surging economies of China and India have sent prices soaring over the past year, and tensions in oil producing nations like Nigeria and Iran have increasingly made investors nervous and invited speculators to drive prices higher.

Violence in Nigeria helped give crude the final push to US$100. Bands of armed men invaded Port Harcourt, the center of Nigeria’s oil industry Tuesday, attacking two police stations and raiding the lobby of a major hotel.

Word that several Mexican oil export ports were closed due to rough weather supported the overnight gains.

Oil prices are within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, US$38 a barrel then would be worth US$96 to US$103 or more today.

Still, the United States on Wednesday said it would not release oil from the nation’s strategic reserves to drive prices lower.

Crude prices, which have flirted with US$100 for months, have risen in recent days on supply concerns exacerbated by Turkish attacks on Kurdish rebels in northern Iraq and falling domestic inventories. However, post-holiday trading volumes were about 50 percent of normal Wednesday, meaning the price move was likely exaggerated by speculative buying.

Just one trade was recorded at US$100 a barrel, and it was a relatively small one — for one contract, or 1,000 barrels — on the Nymex floor, where traders shout buy and sell orders, Dow Jones Newswires reported.

On Wednesday, “the amount of trading was thin and so you could have one or two trades that skew the market,” Shum said.

“My view is that the market will breach US$100 a barrel. But later on in the first quarter, pricing is bound to ease back below US$100 because closer to spring, demand for oil in the world typically cools down,” he said.

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