ENERGY

Oil hits new record of $114 a barrel

3 min

Oil prices eased on Asian markets after they hit a record of $114 a barrel on Tuesday. "The physical oil market appears tight and highly sensitive to news of any supply interruption," an analyst quoted by AFP said by way of explanation.

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Oil prices eased in Asian trade on Wednesday after a series of record highs driven by supply worries, dealers said.

In late morning trade, New York's main oil contract, light sweet crude for delivery in May, was 24 cents lower at 113.55.

The contract earlier topped 114 dollars a barrel for the first time, hitting 114.08 after floor trading closed on Tuesday at the New York Mercantile Exchange.

Brent North Sea crude for June delivery was 28 cents lower at 111.30 dollars a barrel.

Brent for May expired on Tuesday at a record 111.31 dollars a barrel after reaching an intraday high of 112.08 dollars.

Analysts said gains were underpinned by expectations that an inventory report from the US Department of Energy (DoE), due later Wednesday, would show further declines in US petroleum and heating oil inventories.

Victor Shum, senior principal at Purvin and Gertz energy consultancy in Singapore, said prices will continue to rally despite demand showing signs of weakness.

"The market has generally ignored bearish news and focused on the bullish," Shum said, forecasting that the DoE report will likely show a fall in the inventories of products like petrol, but a build in crude.

Recent production stoppages added to supply worries, analysts said.

Mexico said Monday it had closed four export terminals due to bad weather, while oil giant Shell said shipments over its 1.1 million-barrel-per-day Calpine pipeline in the southern United States had been temporarily disrupted.

Reports also emerged of minor supply outages in Nigeria, Africa's biggest oil producer, after rebels caused a fire at the Beniboye oil plants in the Delta State of Nigeria.

The incidents were relatively minor but, because they closely followed one another, they stoked supply fears among investors already spooked by current inventory levels.

"The physical oil market appears tight and appears highly sensitive to news of any supply interruption," said Fairfax analyst John Mayer. "Further supply issues are expected in Nigeria and other difficult areas for the industry."

Shum said oil and other commodities have benefited recently from an inflow of money from investors seeking higher returns than they can get in battered financial markets.

"Money always looks for better returns, so it makes sense for investors to pile money into oil given the weakness of the financial market and expectations of further interest cuts and weakness in equities," Shum said.

OPEC on Tuesday left unchanged its 2008 estimate of growth in world oil demand, arguing that while high prices and slowing economies would brake demand in major industrialised countries, appetite for crude would remain robust elsewhere.

The cartel, which pumps 40 percent of global crude output, added that soaring prices reflected high volatility that was primarily due to "non-fundamental" factors such as financial market turmoil, the weaker US dollar and a worsening outlook for the US economy.

"World oil demand is forecast to grow by 1.2 million barrels per day in 2008 to average 86.97 million bpd, unchanged from last month," the Organisation of the Petroleum Exporting countries said in its April monthly report.

The International Energy Agency (IEA), policy adviser to major industrialised nations, recently revised its estimate for global oil demand this year down to 87.2 million barrels per day. That was a reduction of 310,000 barrels per day from its previous estimate.
 

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