Oil jumps past $96 amid supply woes

Dubai: Crude oil futures for December delivery in the United States jumped to $96.24 a barrel yesterday.

The crude leaped as low domestic oil inventories ahead of winter, a further weakened dollar due to Federal Reserve's interest rate cut and geopolitical tensions amid already tight global supplies threatened to take prices past the psychological $100 per barrel within the next few trading sessions.

Oil prices have surged more than 50 per cent since the start of the year, and have risen about 18 per cent in the past month alone on winter supply worries, speculative buying and a succession of record lows for the US dollar.

The September 11 decision by the Organisation of Petroleum Exporting Countries (Opec), the group that supplies more than a third of the world's oil, to add 500,000 barrels per day (bpd) of crude to the market from November 1 did not seem to calm down prices.

Oil surged more than one per cent higher yesterday on the New York Mercantile Exchange. Effective yesterday, Opec is pumping in nearly 31 million bpd to the 86 million bpd global market.

Crude oil futures for December delivery in the US, the world's largest oil consumer, leaped to $96.24 a barrel as low domestic inventories ahead of winter, a further weakened dollar due to Federal Reserve's quarter percentage point interest rate cut and geopolitical tensions amid already tight global supplies threaten to take prices past the psychological $100 mark within the next few trading sessions.

Ministers from Opec said earlier this week the group has no power over many of the factors buffeting oil markets and it is worried by record high prices that are threatening the world economy and future demand growth.

"The market is out of control," said Opec president and UAE Minister of Energy, Mohammad Bin Dha'en Al Hamili. "The market is increasingly driven by forces beyond Opec's control, by geopolitical events and the growing influence of financial investors," he said.

Al Hamili, however, made it clear that a further increase in supply was not on the agenda for Opec's informal talks in Riyadh in mid-November.

Oil prices surged $4.15 higher on Wednesday, the biggest one-day gain in 10 months, after US data showed an unexpected 3.9 million-barrel drop in crude stocks last week.

Market analysts said it will be awhile before the impact of high prices on oil importing countries sinks in.

"Surprisingly, there seems to be no panic in the market as prices move to within a whisker of $100 per barrel," said Kate Dourian, energy information provider Platts' Middle East editor.

Consumption patterns

"The oil importing countries are waiting to see how the high prices would affect consumption patterns. We don't know yet what the pain threshold is, because we are going into a zone that has not been tested: three-digit oil," Dourian added.

With global demand unabated despite surging prices and the dollar hitting new lows against major currencies, some econ-omists are saying tough times are ahead for oil importing nations.

"Some countries that are net importers of oil are likely to take drastic measures to reduce their oil bill, like petrol rationing," said Dr Mohammad Amerah, an Abu Dhabi-based econ-omist. "Growth rates of Jordan, Palestine, Mauritania, Morocco and some South Asian and South East Asian countries may get affected."

UAE set for a windfall

As regards UAE, Dr Mohammad Amerah, an Abu Dhabi-based economist, said high oil prices will bring a bonanza for the world's sixth-largest oil producing nation, as its oil export revenue will swell. But domestic oil producing companies and distributors may be pushing for higher gasoline prices in view of the great mismatch between prevailing state-set domestic prices and prices of the oil product in the international market.

"The government is a representative of the consumers and I am sure, it will consider the socio-economic impact of increasing oil prices in the domestic economy," said Amerah.