Crude oil prices rose to a new record above US$99 a barrel yesterday, lifted by worries about inadequate supplies as the Northern Hemisphere enters winter and on news of refinery problems.
The declining US dollar and speculation that the US Federal Reserve will again cut interest rates also boosted prices. Some investors put their money into oil contracts, betting that gains in their price will offset the dollar's weakness.
"The market is now really looking at US$100 a barrel as the next target to hit," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The fact that we are having this surge in pricing in this short trading week underscores the strength of this bull run for oil."
Light, sweet crude for January delivery rose as high as US$99.29 a barrel in electronic trading after the New York Mercantile Exchange closed, breaking the previous intraday record of US$98.62 on Nov. 7. Midafternoon in Singapore, oil was trading at US$98.64 a barrel.
The contract surged US$3.39 during the floor session on Tuesday in New York to a record close of US$98.03 a barrel. The Nymex is closed today for Thanksgiving and will close early tomorrow.
Energy futures got a boost on news of problems at two oil facilities on Tuesday. A Valero Energy Corp refinery in Memphis, Tennessee, that processes 180,000 barrels of crude a day has shut down for 10 days of unplanned maintenance. A Royal Dutch Shell PLC plant that converts bitumen from Alberta's oil sands region into 155,000 barrels a day of synthetic crude oil was also temporarily shut down because of a fire.
Beyond these temporary concerns, investors are anxious that as global demand for energy grows, fueled by China and India's rapid development, oil supplies won't be able to keep up.
Oil producers turn out about 85 million barrels a day, while the US Department of Energy says consumption is between 85 million and 86 million barrels a day.
"The long-term underlying trend is that demand is powering forward and the supply situation looks tight," said Jeff Brown, managing director and chief economist at FACTS Global Energy in Singapore.
Oil prices also got support after the Fed said US economic growth would slow next year to between 1.8 percent and 2.5 percent, lower than its previous projections. It also expects US inflation to slow next year to between 1.8 percent and 2.1 percent.
That could mean the Fed would cut interest rates further, which could weigh on the dollar. On Tuesday, the euro broke through the US$1.48 mark for the first time and climbed as high as US$1.4856, a new record, yesterday.
"When the US dollar hit a record low, oil also surged ahead. It's been an inverse relationship," Shum said. "Also, the Fed indicating worries about the US economy has caused worry that the Fed will cut interest rates."
Traders were also closely watching for the release of the petroleum inventory report from the US Energy Department's Energy Information Administration yesterday.
Analysts surveyed by Dow Jones Newswires, on average, predict that crude oil inventories rose by 800,000 barrels last week.