Oil kicks off year by hitting $100
Violence in Nigeria, supply disruption in Mexico and the prospect of another drop in U.S. inventories and more rate cuts drive crude to triple digits.
NEW YORK (CNNMoney.com) -- Oil prices kicked off 2008 by hitting $100 a barrel for the first time Wednesday, with violence in oil-rich Nigeria, the prospect of more interest rate cuts, a halt in Mexican imports and talk of yet another drop in U.S. crude supplies contributing to the milestone.
U.S. crude for February delivery hit $100 a barrel on the New York Mercantile Exchange just after noon ET. It slipped to settle up $3.64 at $99.62, a new end-of-day record. The previous trading record was $99.29, set Nov. 20, while the previous settlement record was $98.18, set Nov. 23.
Oil prices ended 2007 by gaining nearly 60 percent for the year, the largest jump this decade.
"This market is really gonna fly," Ira Eckstein, president of Area International Trading Corp, said from the NYMEX floor.
The White House ruled out opening the Strategic Petroleum Reserve to temporarily relieve prices, and instead called for more domestic production.
In Nigeria, bands of armed men on Tuesday invaded Port Harcourt, the center of the oil industry, attacking two police stations and raiding the lobby of a major hotel, The Associated Press reported. Four policemen, three civilians and six attackers were killed. The Niger Delta Vigilante Movement claimed responsibility for the attack.
At 2.1 million barrels per day, Nigeria was the world's eighth-largest oil exporter in 2006, according to the U.S. Energy Information Agency.
A surprise fall in manufacturing activity sparked fears of yet another interest rate cut from the Federal Reserve. Interest rate cuts generally cause the dollar to fall - and oil prices to rise - as investors bail out of U.S. stocks and bonds and into commodities.
"The perception is that as the U.S. economy continues to weaken, the Fed will cut interest rates one more time," said Nauman Barakat, an energy trader at Macquarie Futures, the trading arm of Macquarie investment bank.
The Associated Press reported that several Mexican ports were closed due to rough weather.
PEMEX, the Mexican state oil company, could not be immediately reached for comment, but reports indicated the ports should be open by Thursday with minimal disruption to crude shipments.
At 1.7 million barrels per day, Mexico is the world's 10th largest exporter of crude and the second largest exporter to the United States behind Canada.
Analysts are expecting the latest government inventory report - set for release Thursday, to show a 1.8 million barrel decline in crude supplies, according to a Dow Jones poll. It would mark the seventh straight week U.S. crude stocks have dropped.
Oil has been on a tear over the last few months - rising from under $70 in August - as OPEC cuts from earlier this year began to eat into inventories in developed counties.
A falling dollar and reports pointing to tightening supplies as strong demand from developing countries swallows up new production gains have also pushed prices higher, as well as attracted a slew of investment money.
Crude has risen over five-fold since the start of 2002, largely for the same reasons.
Adjusted for inflation, oil is at or near the prices of the early 1980s. At that time, following the Iranian revolution and the outbreak of the Iran-Iraq war, oil traded in the high $30-a-barrel range, the equivalent of between $92 and around $103 a barrel in current prices, depending on the contract cited and the inflation calculation used.
Retail gasoline prices have not risen as fast as oil prices over the last few months, largely due to weak demand.
But with oil prices so high, gasoline is beginning to catch up. The national average price for a gallon of regular Wednesday was about $3.05 a gallon, a penny less than last month but about 30 percent higher than the same time last year, according to the motorist organization AAA.