Price May Top $60 or More If Supplies Are Disrupted And Demand Fails to Cool By BHUSHAN BAHREE Staff Reporter of THE WALL STREET JOURNAL March 4, 2005; Page A3
The big oil-price spike of 2004 looks increasingly likely to get a sequel.
As oil prices approached a new high yesterday, industry analysts said they are anticipating price increases to more than $60 a barrel this year. Some analysts are even beginning to talk of the possibility of greater increases -- to $75 or $80 a barrel -- in the event of a major supply disruption, unless red-hot demand for crude cools in Asia and the U.S.
Unlike last year, when rising prices sparked protests in the U.S. and elsewhere, opposition to the increase has become quieter as businesses and consumers have become accustomed to more expensive oil.
Yesterday, the acting secretary general of the Organization of Petroleum Exporting Countries, Adnan Shihab-Eldin, acknowledged in remarks to journalists the possibility of prices rising to greater levels if supplies are disrupted, suggesting the cartel believes it has a limited ability to curb world oil prices. Talk of a renewal of last year's run-up in prices comes as OPEC's energy ministers prepare to meet in Iran on March 16. While they could raise production quotas, OPEC already is pumping close to capacity.
U.S. benchmark oil shot above the previous settlement high of $55.17 a barrel in intraday trading on the New York Mercantile Exchange yesterday before retreating. Futures for April delivery settled at $53.57 a barrel, up 52 cents, after hitting as high as $55.20. On an inflation-adjusted basis, oil is still well below highs of about $90 reached in the early 1980s.
Like last year, growing world demand -- particularly from the U.S. and China -- underlies much of the price increase. The continued weakness of the dollar also has set the stage for increases, because oil is priced in dollars around the globe, and a weaker dollar means less revenue per barrel for oil producers.
The current surge in prices also comes amid realizations by OPEC nations and oil traders that higher prices have had a limited impact on world economic growth. While costlier energy has been a significant drag on relatively weak economies such as Japan and Germany, higher prices haven't been enough to derail recoveries in the U.S., China and other more-vigorous areas. With the world showing signs that it can withstand higher energy prices, there has been little evidence lately to suggest that either oil producers or big consumers are trying to cap the latest run-up.
"There is no fear of high oil prices," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "That's what scares me the most." He noted that Federal Reserve Chairman Alan Greenspan hadn't even brought up the issue of oil prices in Senate Budget Committee testimony on Wednesday.