- Jul 12, 2006
Oil prices hit a record $105.10 a barrel Thursday, a day after a surprise drop in U.S. crude supplies and a decision by OPEC not to boost production.
Prices gave up some ground by midday trading in Europe. Light, sweet crude for April delivery was still up 11 cents to $104.63 a barrel in electronic trading on the New York Mercantile Exchange.
On Wednesday, the April contract had jumped $5 to settle at a record $104.52 a barrel and later rose to $104.95 in post-settlement electronic trading.
Earlier this week, oil prices broke the previous inflation-adjusted price record of $103.76, set in 1980 during the Iran hostage crisis.
In London, Brent crude fell 21 cents to $101.43 a barrel on the ICE Futures exchange.
"The primary factor causing the surge in oil prices is the surprising drawdown in crude inventories, which caused traders to really react quite dramatically," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Most analysts had expected the U.S. Energy Department's Energy Information Administration to report oil stocks rose last week for the eighth straight time. Instead, the stocks fell 3.1 million barrels.
In Vienna, the Organization of Petroleum Exporting Countries said Wednesday it would hold production levels steady, at least for now. OPEC ministers cited falling demand in announcing their decision to hold production steady.
The EIA report and OPEC announcement fed a new frenzy of investing in oil futures, which have risen to new inflation-adjusted records this week as the falling dollar drew investors to the market.
"Five dollars is an incredible gain," Shum said. "The overall oil market fundamentals are supportive of strong oil prices but not at this level, above $100. I would expect some profit taking to put a temporary halt to this rather large surge in pricing."
The dollar, meanwhile, fell to a new low against the euro, with the EU's shared currency climbing to $1.5329 before dropping back slightly. The euro set its previous high mark of $1.5302 on Wednesday.
Analysts noted that U.S. oil inventories are at historical highs despite last week's decline in crude supplies. Meanwhile, demand for gasoline is falling, and several forecasters have cut their oil demand growth predictions for this year.
Traders also worried about the escalating of tensions between oil producing countries in Latin America. Colombia's weekend attack on leftist rebels hiding in Ecuadorean territory has sparked a growing crisis as Venezuela moved tanks and soldiers to the Colombian border Wednesday. Ecuador said Monday it had sent 3,200 soldiers to its border with Colombia.
In other Nymex trading, heating oil futures fell 1.04 cents to $2.9327 a gallon (3.8 liters) while gasoline prices lost 0.63 cent to $2.6358 a gallon. Natural gas futures added 3.9 cents to $9.78 per 1,000 cubic feet.