Crude Oil Prices Top $50 Per Barrel

LONDON – Crude oil futures contracts topped the psychological milestone of $50 per barrel for the first time Tuesday, surging to new record levels that could unsettle oil importing nations.

Analysts said instability in the Middle East; political unrest in Nigeria, Africa’s top oil exporter; and the Caribbean’s hurricanes were keeping traders on edge about world supplies.

But some also said the price may not be sustainable, and that argument gained strength when Saudi Arabia announced Tuesday that it will raise oil production from 9.5 million barrels a day to 11 million barrels.

The increase by the world’s largest oil exporter will go into effect within weeks, an oil ministry official speaking on condition of anonymity said.

Producers have been seeking ways to calm markets after an announcement nearly two weeks ago that the OPEC cartel would boost its production target by 1 million barrels a day beginning in November failed to bring down prices. The cartel has been exceeding the new output limit since the beginning of the year.

It wasn’t immediately clear if all or some of the oil hike the Saudi official described Tuesday was included in the previously-stated OPEC plans. Saudi Oil Minister Ali Naimi said last month that his country was willing to provide an extra 1.3 million barrels of oil a day to the world market if required to do so.

Traders bid oil over $50 a barrel in Asian trading Tuesday after settling at a new high of $49.64 a barrel Monday on the New York Mercantile Exchange in reaction to the slow recovery of U.S. oil production that was damaged by Hurricane Ivan and unrest and terrorism fears in key producers Saudi Arabia, Iraq and Nigeria.

By mid-afternoon in Asia, November crude contracts traded as high as $50.47 per barrel, up 83 cents. Later, crude slipped and was trading at $50.20, up 56 cents, in electronic trading in advance of Tuesday’s opening on the Nymex.

Oil spiked despite assurances from Purnomo Yusgiantoro, president of the Organization of Petroleum Exporting Countries, that producers are trying to bring prices down, but the group thinks supply is not the problem.

“The latest spark was the reported increase in fighting in Nigeria,” said ANZ Bank energy analyst Daniel Hynes from Melbourne, Australia. “But Ivan certainly paved the way for the latest surge.”

Rebels in Nigeria continue to battle for control over the vast southern oil fields in the world’s seventh-largest exporter.

The Niger Delta People’s Volunteer Force rebel group said Tuesday the insurgents will begin a full-scale armed struggle to gain control of the regions oil riches from Nigeria’s government beginning Oct. 1.

That rattled markets, even though Nigeria’s senior oil adviser, Edmund Dakoru, told Dow Jones Newswires he is confident that foreign oil companies won’t succumb to threats by militia that they must halt their oil production in the country.

“We have had these kind of threats before and nothing has happened,” Dakoru said. “And I am not concerned that Nigeria’s oil industry will suffer as a result of these threats.”

The United States has lost more than 11 million barrels of oil production in the past two weeks, according to U.S. government data, with Gulf of Mexico output still down nearly 500,000 barrels a day following the devastation brought by Ivan.

The price of oil is up roughly 75 percent from a year ago and some analysts predict the latest surge – which is already hurting airlines and other big consumers – could lead to a global recession.

Although oil is at an all-time high, prices are not at record levels when inflation is taken into account. Adjusting for inflation, today’s prices are still more than $30 below the level reached in 1981 after the Iranian revolution.

That hasn’t eased the fears gripping the market, however.

“There is a lot of fundamental, panic buying by the end users,” said oil strategist Ng Weng Hoong at Energyasia.com in Singapore, adding that he believed the price would go still higher.

With global oil demand at roughly 82 million barrels a day, analysts say the amount of excess oil production available is only about 1 percent, leaving the industry a slim margin for error in the event of a prolonged supply interruption.

On Monday, the U.S. Minerals Management Service reported that daily oil production in the Gulf of Mexico is 29 percent below normal at about 1.2 million barrels per day. Eleven million barrels of oil, or 1.9 percent of annual production in the Gulf of Mexico, have been lost since Sept. 13, when offshore producers began evacuating crews and shutting down production ahead of Ivan’s arrival.

In Iraq, fighting between U.S.-led forces and rebels has shown no sign of letting up ahead of the country’s elections in January.

In London, Jeremy Batstone, an analyst with Charles Stanley, said, “The cost of oil needs to rise much further before it has a major impact on the global economy,”

Jason Kenny, and oil and gas analyst with ING Financial Markets in Scotland, said: “There is a lot of supply concern in the market, I think we’ll have a lot of volatility over the next few weeks, until we get some clarity about U.S. oil inventories, OPEC output movements, geopolitics.” But he also said, “I personally think the $50 level is unsustainable,” because some oil importing nations can’t afford that price.

Kenny said oil prices could conceivably rise to $60 in the near future, but that he believed they were more likely to fall fairly soon, barring another major terrorist attack somewhere in the world.

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Associated Press Writer Abdullah Al-Shihri in Riyadh, Saudi Arabia, contributed to this story.