Oil prices end at a record high
Declining inventories, potential trouble with Turkey and projections for a colder winter push crude to $83.69 a barrel
NEW YORK (CNNMoney.com) -- Oil prices settled at a record high Friday on news of dwindling stockpiles, potential trouble with Turkey and projections for a colder winter.
U.S. crude for November delivery rose 61 cents to settle at $83.69 a barrel on the New York Mercantile Exchange, after hitting a fresh trading high of $84.05 a barrel earlier in the session. The previous settlement record was $83.32 set Sept. 20.
Oil was expected to begin a seasonal retreat from those September highs as refineries begin winter maintenance and use less crude, gasoline demand slows and the dollar comes off recent lows.
But a number of events in the last couple of days have pushed oil to all-time highs, although when adjusted for inflation, oil is still slightly cheaper than the $90 a barrel or so it would have been in the early 1980s.
On Thursday, the Energy Information Administration said crude stocks fell by 1.7 million barrels last week. Analysts were looking for a gain of 1 million barrels, according to a Dow Jones poll.
The decline in U.S. stockpiles corresponded with an International Energy Agency report the same day that showed a decline in stockpiles across developed countries.
The IEA also left its demand projections for 2007 and 2008 unchanged, despite record prices. IEA says worldwide demand will grow by 1.5 percent in 2007 and 2.4 percent in 2008.
"There seems to be a lot of concern over sufficiency of supply for the upcoming winter," said John Kilduff, an energy analyst at MF Global in New York.
Kilduff also said concerns over the economy have faded, pointing to reports this week showing fewer jobless claims and stronger-than-expected retail sales.
"Any hope of lower energy prices were on the back of an economic slowdown," he said. "But the economic data just isn't looking as poor."
In August, subprime induced fear rattled markets and briefly brought oil prices down below $70 a barrel.
On Tuesday, EIA said this winter, while projected to be about 2 percent warmer than usual, will be about 4 percent colder than last year. As a result, people will use more heating oil and natural gas.
And traders are also keeping an eye on mounting tensions with Turkey. Leaders of the NATO member and close U.S. ally are upset over a resolution in the U.S. Congress calling the massacre of Armenians during World War I a genocide.
Turkey has thousands of troops bordering northern Iraq and wants to engage Kurdish fighters, who have killed several Turkish troops in recent days as part of an ongoing struggle to form an independent country in the region that would include taking a slice of territory from Turkey. Northern Iraq is home to much of the country's oil production, which is running at more than 2 million barrels a day.
But despite the record highs Friday, some analysts question whether $80 oil is really sustainable.
"The latest bull run seems somewhat overdone," Antoine Halff, head of energy research at Fimat in New York, wrote in a research note Thursday. "Last week's surprisingly steep US crude stock draw, reflecting both higher-than-expected crude runs and a steep drop in crude imports, may not be sustainable in the face of rising OPEC output and seasonal refinery maintenance."
Oil prices have more than quadrupled since 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 geopolitical tensions have on prices, as there is less spare supply available globally to cover a disruption from someplace 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.