Oil prices hit new record highs yesterday after crossing US$70 a barrel in Asian trading hours as powerful Hurricane Katrina threatened the crude-producing Gulf of Mexico region in the US.
With the psychological barrier now breached, some analysts said prices could now aim for the once unthinkable US$80 a barrel -- a level which economists fear could severely dent consumer demand and curb business activities.
New York's main contract, light sweet crude for delivery in October, touched a high of US$70.80 and was trading at US$69.87 at 2:20pm, up US$3.74 from its close of US$66.13 in the US market on Friday.
Share markets across Asia and the Pacific tumbled, with dealers saying the cost of crude had struck a level widely seen as a break point -- at which oil costs begin eroding economic growth, weakening currencies, fuelling inflation and pressuring central banks into raising interest rates.
Facing the skyrocketing oil prices, state-run Chinese Petroleum Corp (CPC,
CPC and Formosa raised wholesale gasoline prices by 7.64 percent and 7.39 percent, respectively, on Aug. 3, when the oil price was about US$61 to US$62 per barrel.
Should the price continue to stay above US$70 per barrel for the rest of the year, CPC will see NT$20 billion in losses, a company official said yesterday.
Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo, said the market will await the actual impact of the hurricane on production but he believed US$70 oil may not be sustainable because the US summer holidays are now drawing to a close, reducing gasoline demand.
"US$70 is completely far away from the fundamentals," he told AFP. "It's quite difficult to sustain."
But Dariusz Kowalczyk, a Hong Kong-based investment strategist at CFC Seymour Securities, feared that the impact would be longer-lasting as damage to offshore oil rigs and onshore refineries would take time to repair.
Weather forecasts showed Katrina, one of the most powerful Atlantic hurricanes on record, would hit US oil and refinery operations in the Gulf of Mexico, forcing the evacuation of oil rigs and refineries to be shut down.
Kowalczyk compared Katrina to Hurricane Ivan which pummelled the US Gulf Coast last September, causing widespread damage to the region's oil production infrastructure and leading to a 22 percent rise in prices.
"The similarity with Katrina is so strong that the market really got nervous so prices soared this morning," Kowalczyk told AFP.
While prices have stabilized after breaching US$70 a barrel, "we are still in a very bullish market," he said, adding it was possible prices could even hit US$80 a barrel.
"I think it will be a more sustained move higher ... There is room for significant volatility in the days ahead," he said.
Gasoline prices in particular have shot up 3 percent from Friday's close -- a worrying trend because of its direct impact on US consumers, he said.
Economists said the higher oil prices would restrain Asia's growth momentum, but agreed the impact would be cushioned by other factors such as continued investment growth and strong export demand from the US and China.
RSS