Oil prices stayed near historic peaks at US$51 a barrel in Asian trading yesterday as analysts warned US$60 was "within reach" if the northern winter turns out colder than expected.
At 3:50pm, the benchmark light sweet crude for November delivery was at US$50.97 a barrel, down from its record close of US$51.09 at the New York Mercantile Exchange on Tuesday.
"If the winter turns out to be colder than anticipated, the markets will run," said Esa Ramasamy, director for Asian oil markets reporting at Platts, an energy agency whose analyses are widely used as benchmarks for international spot trading.
"If this happens, you will see 55 dollars as not a problem any more. It becomes a reality and US$60 dollars is within reach,"Ramasamy said.
The winter months in the northern hemisphere traditionally drive up demand for kerosene and diesel, which are used for heating.
Ramasamy said refineries have already started building up their inventories for diesel and kerosene, leading to a sharp rise in demand.
"No refinery will keep low on inventories in winter. And because the refining margin is so good, every refinery is running full capacity, and once that happens there is a natural demand for crude," he said.
On the flip side, Ramasamy said a warmer than expected winter should cause prices to fall due to the high level of inventories.
Ng Weng Hong, editor of industry publication EnergyAsia.com, agreed that a colder winter than expected will further drive prices up, with the continued violence in Iraq and other potential disruptions to oil supplies contributing to the volatility.
"It's going to go up, it's going to be one-way traffic," he said.
"I think the immediate target is US$55 but whether we hit it or not is another matter," he said.
"Winter is coming in North America and geopolitical problems have not been solved. All you need is a couple of terrorists to inflict effective damage on a pipeline and this will shake up the market further," he said.
Ng also noted that, even at US$50 a barrel, there has been no let-up in oil demand.
The high prices, instead of dampening demand, have sparked panic buying and further pushed prices higher, he added.
"There are more guys buying because they think it's going to go to US$60 a barrel. Nobody is letting up," he said.
Ng disputed arguments by some analysts that current prices were in reality lower than levels seen during the oil shock in the 1970s and 1980s if inflation was factored in.
"We're going to be in for a very serious shock. This is giving a lot of false comfort because the conditions now compared with the conditions then are very different," he said.
"Back in the '70s and '80s, there was no China or India factor to look at. There was a lot of spare capacity then," he said
China's huge demand for fuel to power its rapidly growing ecomony is soaking up supply, while more oil is needed to meet the requirements of India's own economic growth, analysts say.
Ramasamy also said speculators had a role to play in driving prices higher.
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