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Crude Oil Prices Hit Record High - 2004-10-06

A damaging hurricane in the United States and continued political instability in key oil-producing countries have severely cut into crude oil production. Continued demand and the thinning global supply propelled oil prices to record-setting highs of more than $51 a barrel this week.

Oil prices have surged more than 50 percent since the beginning of the year, caused by the strongest worldwide demand in 20 years and a shrinking cushion of extra capacity.

Ron Planting, an analyst for the American Petroleum Institute, an oil and gas industry trade group, says the depleting oil inventory stems from strong demand coupled with supply interruptions from major oil-producers.

"We have had uncertainty of what is happening in Nigeria, one of the major world exporters," he said. "We have had Hurricane Ivan in the U.S. Gulf of Mexico that is still cutting about a half a million barrels a day of production, so supplies have been tight."

Damage from Hurricane Ivan in the middle of September has cut supply from the U.S. Gulf of Mexico by some 450,000 barrels a day. That amount is equal to roughly half the output of Indonesia, a small producer in OPEC, the Organization of Oil-Exporting Countries.

Some analysts say crude oil prices could rise to as much as $80 a barrel within the next two years.

But the American Petroleum Institute's Ron Planting says making price predictions is almost impossible.

"The people who do forecast prices have often been wrong and it is not because they are not smart, it is because we do not know what OPEC is going to do, we do not have all the best data for all the developing countries, so there are many reasons why it has become very difficult to forecast prices," he said.

Some analysts also believe the problem has been compounded by China and India, leaders in world consumption of oil. Both countries began buying up oil in the marketplace as a precaution against the political volatility in oil-producing countries in the Middle East.

China and India are two of the world's fastest-growing economies, accounting for almost half of the world's 2.5 million barrel increase in daily oil consumption.

The International Energy Agency, an advisor to 26 industrialized nations, estimates the world's demand for oil will reach more than 82 million barrels a day this year, a three percent increase over last year, and will rise another 1.8 million barrels a day in 2005.