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from.– Oil Crisis...is
the world about to be shocked
Supply woes drive oil markets into
renewed frenzy
NY TIMES NEWS SERVICE, HOUSTON
Advertising A hint of a terrorist threat in Nigeria, a major supplier of
crude oil to the US, worries about a lack of refining capacity and a
growing acknowledgment that OPEC's influence may be waning drove energy
markets into another frenzy on Friday, pushing oil prices above US$58 a
barrel.
Crude oil for July delivery climbed US$1.89, or more than 3 percent, to
US$58.47 a barrel. Some traders said oil might even reach US$70 a
barrel, driven primarily by demand in China and the US, before markets
start to calm again.
Fears over what might affect the supply of oil, rather than what is
actually affecting it, appeared to inject anxiety into the market.
"In this environment, we cannot afford to have any disruptions. We are
still in the uptrend," said Thomas Bentz, senior energy analyst at BNP
Paribas Commodity Futures in New York.
The closing on Friday of the consulates of the US, UK and Germany in
Lagos, Nigeria's largest city, because of reports of threats from
Islamic militants put traders on edge.
Nigeria, a member of the Organization of the Petroleum Exporting
Countries (OPEC), supplied the US with more than 1.1 million barrels of
oil a day in April.
Nigeria's main oil fields are not clustered around Lagos but lie
elsewhere in the country, which is the largest oil producer in
sub-Saharan Africa. Still, the possibility of a terrorist attack in
Nigeria was enough to tap the oil market's fear that demand-driven
pressure on prices might evolve into a full-blown supply-driven crisis.
A sudden restriction of oil supplies led to the oil shocks of the 1970s,
and the lack of spare production capacity around the world, particularly
of the types of crude oil easy to refine into gasoline, has made energy
markets vulnerable to whispers of any potential disruption.
So do the opinions that oil is still relatively cheap. Adjusted for
inflation, oil is less expensive than it was in 1981, when Iran choked
off oil exports.
The average cost of oil used by American refineries at that time was
US$35.24 a barrel, or US$75.44 in current dollars, according to figures
from Bloomberg.
One of OPEC's concerns, which its members expressed at a meeting this
week in Vienna, Austria, is that oil prices will quickly climb to a
level where many automobile owners decide to switch from sport utility
vehicles to compact cars, or possibly, to public transportation or
carpooling.
Such a change in driving habits, while still considered unlikely, might
produce a scary outcome for oil-producing countries: a crash in oil
prices.
"When I go to neighborhood parties, people are always asking me when
gasoline prices are coming down," said David Pursell, a principal with
Pickering Energy Partners, an energy investment firm in Houston.
"Well, I always reply, `When are you going to start riding the bus?'
There's lots of angst, but not enough to keep us from US$60 oil," he
said.
Not everyone is convinced oil prices will continue to soar. "Scary Oil,"
for instance, was the title of a report written this week by Andy Xie,
the greater-China economist for Morgan Stanley in Hong Kong. Xie
predicted a sharp decline in oil prices, citing signs of softer demand
in China, the second-largest petroleum consumer after the US; Chinese
oil imports fell 1.2 percent in the first five months of this year.
"What is occurring now is probably the final frenzy, in my view," said
Xie, who went on to write that the oil market's recent surge "could
correct in the most speculative fashion -- it could collapse."
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