The price of Brent oil remained around 10-year high levels in volatile trading here on Wednesday as dealers continued to anticipate supply shortages regardless of an unexpected increase in US oil stocks.
Some analysts predicted prices could spike to as high as $35 a barrel in London and $40 in New York by the end of the year -- unless the supply situation improved.
By late afternoon, Brent crude for September delivery was being traded at $32.40 a barrel, 22 cents higher than Tuesday's close.
Exceptionally, the level was higher than in New York, where light sweet crude for September delivery was trading at $31.62 a barrel, five cents lower.
In London on Tuesday crude prices reached a session high of $32.80 a barrel, the highest level since November 1990 when the price rose to $32.45 following the invasion of Kuwait by Iraq. On October 10, 1990, Brent had risen to $40.95 a barrel.
Prices had began to surge ahead of Tuesday's publication of figures by the American Petroleum Institute (API), amid expectations the body would reveal a continued decline in stock levels which had fallen to a 1976 lowpoint the previous week.
But surprisingly, the API reported on Tuesday that crude stocks rose 7.40 million barrels to 286.4 million in the week to August 11 from the previous week and were 32.76 million barrels lower from the previous year.
In its daily note, GNI Research said it expected the market to remain high, especially as the situation regarding supplies from Saudi Arabia, the world's leading oil producer, remained unclear. It added that the stock build reported on Tuesday was mitigated by a downards revision of the previous week's data.
However, analysts pointed out that the London price rise was exaggerated before expiry of the September Brent contract after the market close on Wednesday. An analyst at Salomon Smith Barney, Peter Gignoux, said: "The extreme backwardation of the expiring September future is confusing the market."
Turning to future price levels, he was agnostic about how high they could go, although he said that last year the average price of Brent was 18.03 dollars a barrel, and for the year to date it was $27.25. The chief economist at the Centre for Global Energy Studies, Leo Drollas, said prices could rise to $40 a barrel in New York and $35 in London by the end of this year -- but only if the Organisation of Petroleum Exporting Countries (OPEC) did not agree an output increase at its ministerial conference in Vienna on September 10.
He also stressed that such price rises would be occasional spikes, not averages.Moreover, Drollas predicted that OPEC would agree to pump at least 500,000 extra barrels a day. The producers' organisation has already increased production twice this year in an attempt to stabilise prices which have tripled since late 1998.
In July, Saudi Arabia triggered a marked decline in prices when it said that it would increase production by 500,000 barrels per day unless the market stabilised. Fellow OPEC members criticised Saudi Arabia for its "unilateral" stance, but Venezuelan Oil Minister Ali Rodriguez, who is also OPEC president, subsequently announced he had asked his colleagues to prepare for an increase of 500,000 barrels per day if prices remained high.
The output rise was not forthcoming as the price of an OPEC basket of crude oils fell sharply. On Tuesday, the basket price stood at $28.53, OPEC said. Meanwhile, the precise impact on inflation is not straightforward and analysts said it depended on how much of the crude price rise was passed on by oil companies.
A month ago, the Office for National Statistics attributed rising inflation to high oil costs. However, on Tuesday, the latest set inflation figures for Britain showed that oil and petrol prices had a negative 0.02-percent impact on underlying inflation of 2.2 percent, following petrol price cuts introduced by supermarkets last month.
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com )