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Oil prices ease after hitting record high

Oil prices eased yesterday after soaring to touch a record US$100 a barrel overnight on escalating violence in Africa's leading oil producer, a weaker US dollar and a view that global demand for oil will outstrip supplies.

Traders were awaiting the release of a weekly US petroleum supply snapshot later yesterday, and some expected crude futures to break through the US$100 a barrel level if the government reported crude inventories fell by more than expected, analysts said.

"We're so close to US$100 right now," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

"If the US inventory report indeed shows stock draws, and particularly bigger than expected draws, plus a heightening of geopolitical risks and a falling US dollar, all these factors could push pricing beyond US$100," he said.

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.

FINAL PUSH

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 on Tuesday, attacking two police stations and raiding the lobby of a major hotel.

Light, sweet crude for delivery next month fell 31 cents to US$99.31 a barrel in Asian electronic trading on the New York Mercantile Exchange by mid-afternoon in Singapore.

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

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.

The US on Wednesday said it would not release oil from the nation's strategic reserves to drive prices lower.

"This president would not use the [Strategic Petroleum Reserve] to manipulate [prices] unless there was a true emergency," said White House press secretary Dana Perino.

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 Iraq and falling domestic inventories. However, post-holiday trading volumes were about 50 percent of normal on Wednesday, meaning the price move was likely exaggerated by speculative buying.

ONE TRADE

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.

"The amount of trading [on Wednesday] 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.

drop

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

The US Energy Information Administration's inventory report, delayed until yesterday 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 London, Brent crude futures lost 34 cents to US$97.50 a barrel on the ICE Futures exchange.

In other Nymex trading, heating oil futures fell 0.57 cents to US$2.7347 a gallon (3.8 liters) while gasoline prices fell 0.40 cent to US$2.5649 a gallon. Natural gas futures added 0.5 cents to US$7.855 per 1,000 cubic feet.
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