Oil hits another record above $97
Fears of dwindling stockpiles in the United States, a falling dollar and projections of strong demand push crude closer to $100.
NEW YORK (CNNMoney.com) -- Oil prices set another record high Tuesday, jumping over $2 on fears of dwindling supplies in the United States, projections for strong worldwide demand and a falling U.S. dollar.
A suicide bombing in Afghanistan that killed at least 35 people and a pipeline attack in Yemen also helped push prices higher.
U.S. light crude for December delivery gained $2.72 to settle at $96.70 a barrel on the New York Mercantile Exchange, surpassing the previous closing high of $95.93 set Friday. Crude hit an intraday high of $97.07, surpassing the previous intraday record of $96.05, also set Friday.
Crude, already up more than $2 in morning trade, rose further after the Energy Information Administration issued a report showing worldwide demand unchanged, despite high prices.
EIA said the forecast for oil use growth worldwide in 2008 was unchanged at 1.5 million barrels per day. This was despite the fact prices have risen 20 percent.
The agency said world oil use would grow by 1.8 million barrels per day in the current quarter, slightly below previous estimates due to a drop in U.S. demand.
The world currently consumes about 85.6 million barrels of oil a day.
Total U.S. petroleum consumption is expected to increase by 0.5 percent in 2007 and 1 percent in 2008, despite the higher oil and petroleum product prices. Continued economic growth and forecasted colder average temperatures this winter than last winter could combine to push demand higher.
The rising demand's impact on prices was noted.
"Tight fundamentals continue to put upward pressure on oil prices," read the report. "Global oil markets will likely remain stretched, as world oil demand has continued to grow much faster than oil supply outside of the Organization of the Petroleum Exporting Countries."
EIA estimates oil prices in the fourth quarter to average $87 a barrel.
Crude got a boost earlier in the day on projections of another stockpile draw in the United States.
Analysts expect a 1.6 million barrel drop in domestic crude supplies when the government issues its weekly inventory report Wednesday.
Most of the decline is being blamed on an outage from Pemex, Mexico's national oil company. Mexico, after Canada, is the second largest source of imported U.S. oil.
The drop would follow last week's decline of more than 5 million barrels. It would also come while refineries are shutting down for planned maintenance - a time that should see rising supplies of oil as refineries turn less of it into gasoline.
Overseas, at least 35 people - including three children and six members of parliament - have been killed in a suicide bombing at a sugar factory in northern Afghanistan, the hospital chief in that province told CNN.
While Afghanistan doesn't produce much oil, violence in the Middle East always makes traders nervous. The fear is the conflict could spread to the broader region, which holds nearly two-thirds of the world's oil reserves.
An attack on an oil pipeline in Yemen also disrupted the shipment of 155,000 barrels of oil a day, the Associated Press reported.
The continuing weakness of the U.S. dollar, which hit $1.4556 against the euro earlier Tuesday, also contributed to climbing oil prices.
One analyst said oil will likely attempt to break $100 a barrel but actually doing so might be tough.
"We still feel that prices will ultimately advance to at least $98.50," Peter Beutel, an oil analyst at Cameron Hanover, wrote in a research note. "But there will be increasingly heavy long-term profit-taking as prices get closer to the magical three-digit level."
Crude prices have spiked more than 20 percent in the last three weeks. The jump is unusual because this time of year is known as a shoulder season - marked by slack demand - between the summer driving and winter heating months.
Crude is now at or near all-time highs, even adjusted for inflation. The last time oil was this high was the early 1980s, when it rose to $93 to $101 a barrel, depending on the inflation calculation used and the oil contract cited.
Fighting between Turkey and the Kurds in oil-rich northern Iraq, reports showing demand outpacing supply in the fourth quarter, a falling dollar and lots of speculative investing have all been cited as reasons for the runup.
Crude oil prices have surged nearly five-fold since trading below $20 a barrel in 2002. Analysts say surging global demand combined with limited new supply is the main underlying factor.
The surge in prices has also attracted lots of speculative investment money, further driving prices higher.
And the tight supply and demand situation magnifies the effect that geopolitical tensions have on prices, as there is less spare supply available globally to cover disruptions from places like Iran, Nigeria or Venezuela.
The falling U.S. dollar has also played a role, as oil worldwide is priced in dollars.
Oil-producing nations have less incentive to ramp up output if the buying power they receive per barrel is declining, and foreign consumers have less incentive to reduce demand if oil is, relatively, getting cheaper for them.