The Times: Crude prices surge near to 21-year high
By Carl Mortished, International Business Editor
May 25, 2004
THE oil price surged to new heights yesterday as market speculators tested Saudi Arabia’s ability to bring the rampaging crude oil price under control.
In New York, the Nymex futures price leapt by almost $2 a barrel, shrugging off a Saudi promise to raise the Kingdom’s output to more than nine million barrels per day.
Instead of quelling the heat in the oil market, Saudi Arabia’s weekend challenge to drown hedge funds and speculators in an oil slick has provoked an aggressive response.
The cost of a barrel of crude reached $41.80, close to a 21-year high, and forecasters predicted a summer of expensive energy. Fears that violence in Iraq could disrupt supplies heightened with the bombing of Iraq's pipeline to Ceyhan in Turkey and increased concern that the country could be threatened with a major attack on its oil infrastructure.
John Snow, the US Treasury Secretary, expressed confidence that the Saudi move would calm the market but doubts were being expressed among other officials.
Guy Caruso, head of the US Energy Information Administration, predicted that US oil prices would remain high and expressed doubts that the extra oil promised by Ali al-Naimi, the Saudi Oil Minister, would be enough to meet burgeoning demand.
The EIA chief said: “We’re continuing to see very tight crude markets just based on the fundamentals, demand is outpacing supply growth and we’re looking at a $36 to $37 oil price, even with the kind of production numbers that Minister Naimi mentioned this weekend.”
Julian Lee, of the Centre for Global Energy Studies, reckons that extra oil from Saudi Arabia will have little impact on the acute petrol shortage in the United States. “It will take the best part of two months to get it to the US, to refine it and get it to petrol pumps.”
Saudi Arabia is again donning the mantle of the world’s oil price setter, reminding speculators and rivals within the oil price cartel that it has the only significant store of spare capacity in the global oil market. Its current spare capacity level of 2.2 million barrels per day represents more than half of Opec’s unused output.
The Saudi challenge to market speculators may also open old wounds within Opec. Mr Naimi’s call on Opec to raise output could embarrass key members, such as Venezuela, which is unable to produce enough oil to meet its current quota, much less satisfy market demands for an increase.
Mr Lee sees a shift in the balance of power. “For the first time, spare capacity is starting to become an issue. It means that Opec’s real power is moving back to the Middle East.”
Shell cuts its oil and gas reserves again yesterday, removing 120 million barrels from the proven category after a change to the accounting treatment of royalties paid on its Canadian oil properties. The further shaving of the oil reserves failed to move the stock market, which was rocked in January by the company’s disclosure that 4 billion barrels had been misreported.
Jeroen van der Veer, chairman of Shell’s committee of managing directors, said that he hoped the publication of the annual report this Friday would be a milestone in Shell’s recovery, but the company confirmed that no severance terms had been agreed with Sir Philip Watts, who lost his job over the misreporting.