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Oil Prices Hit New Highs - 2004-08-09

The price of crude oil surged to a record high Monday, reaching $44.95 a barrel on the New York Mercantile Exchange. News from Iraq and Russia appears to have heightened concerns about petroleum supplies.

Monday's 2.1 percent jump in oil prices obliterated the previous record high of $44.46 per barrel. That price had been set just last week for crude oil scheduled for delivery in September.

Energy analyst Marshall Steeves with Refco Group, a New York-based financial services firm, says the price hike has little to do with actual oil supplies. Rather, he says, it is driven primarily by news headlines and the nervousness they generate.

"I believe it is more psychology-driven. We are seeing a continuation of a 'fear premium' instilled in crude oil prices, related primarily to the security issues in Iraq, and of late it has also entailed some of the problems in Russia pertaining to the Yukos potential bankruptcy and some of the tax problems they have been having there," he said.

Iraqi officials say production has been halted in their country's southern oil fields amid threats by militants loyal to radical Shiite cleric Moqtada al-Sadr to attack Iraq's petroleum infrastructure. Iraq is the Middle East's fifth largest producer of crude oil, and more than 80 percent of its exports pass through the southern port of Basra.

Meanwhile, Russian bailiffs are again moving to seize the production assets of energy giant Yukos. The Russian government is attempting to recover a multi-billion dollar Yukos tax debt, but officials have pledged to avert a production shutdown.

The leader of another top oil producer, Venezuelan President Hugo Chavez, faces a recall referendum later this month. Strife in the South American nation has disrupted oil production in the past.

Despite the uncertainty, energy analyst Marshall Steeves says, at least in the short term, American consumers are not likely to be punished at the pump with higher gasoline prices.

"We have seen crude oil imports remain at a very high level, in excess of 10 million barrels per day for some time now. And, indeed, that has enabled U.S. commercial oil stocks to build up over the last couple of quarters," he said. "So I think that the current pricing in the market overstates the supply-squeeze to a certain degree. We will probably see retail prices fairly flat between now and the Labor Day [September 6] holiday."

Speaking on U.S. television [CNBC network], Energy Secretary Spencer Abraham called on Congress to pass a comprehensive energy bill to boost domestic petroleum production. He added that the Bush administration has no plans to dip into America's Strategic Petroleum Reserve to alleviate domestic gasoline prices.