The price of oil briefly passed $80 a barrel for the first time, pushed up Wednesday by reports of low inventories in the U.S., weather concerns and possibly by speculators, industry experts said.
The benchmark price of crude oil rose to $80.18 but later pulled back to settle at $79.91, up $1.68, in trading on the New York Mercantile Exchange.
The federal Energy Information Administration reported that petroleum on hand fell by 7.1 million barrels, more than had been expected.
While many analysts attributed the price jump to low inventories in the U.S., others said that factors ranging from the world's largely vibrant economy to the hurricane season are affecting prices.
Yet the increase came after the Organization of the Petroleum Exporting Countries announced it would increase production by a half-million barrels a day.
"It is going to take time to get here," said Peter Morici, an economist and professor at the University of Maryland school of business. "And it is less than was hoped for."
Increased output by OPEC won't kick in for weeks, and still more time will elapse as the additional crude passes through pipelines to ports, then travels by tanker to the world's refineries.
Nor is OPEC's increase particularly large. Global oil production for this year is estimated at nearly 86 million barrels per day.
Curiously, even as oil prices rose, gasoline prices have been stable or have even declined a bit in some parts of the U.S. over the past couple of days, according to the American Petroleum Institute.
In Chicago, for example, AAA Chicago said the average price of a gallon of regular gasoline Wednesday was $3.209, down from $3.215 a day earlier. For the state overall, the price was $3.094, down $3.101 from a day earlier.
"Historically there has been a lag before crude oil price changes are reflected in retail gasoline prices" the petroleum institute said.
Tropical storms brewing in the Gulf of Mexico may have prompted some buying, as much of the country's production of petroleum is in that region. The International Energy Agency cited "seasonal hurricane fears" as one factor in inflating the price of crude.
But one industry observer sees another cause for oil to rise.
"Mainly, we feel it is speculative hedge fund buying," said James Cordier, head trader for Liberty Trading Group. He said that the oil market often rallies briefly at this time of year.
"We really don't see the market staying at $80 or above $80 for very long," Cordier said. "We are going into the lowest demand season of the year."
The summer driving season is over, and while refiners are switching over to producing heating oil for the winter, warm weather persists.
But some industry observers say that while prices will fluctuate daily, the long-term price has only one direction.
"In the last few years we seen peaks and valleys, but generally it's on the way up," said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University.
"The market believes that growth in demand is going to continue to outpace growth in supply," Bullock said.
An economic slowdown across the world, particularly in countries such as the U.S. and China, which consume massive amounts of petroleum, could depress demand and prices.
"There's still a big question of how the credit crunch will ultimately affect demand," said Eugene X. Hodge, a managing director at John Hancock Financial Services Inc. in Boston, who manages a $4.3 billion oil and gas company bond portfolio. "It's too early to know what will happen."
Oil is still well below inflation-adjusted highs reached in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.
source: 13sep2007
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