Crude Price Surges Past $48, Close In on $49
{{#rendered}} {{/rendered}}Crude oil prices surged to a new record Thursday, passing the $48-a-barrel level, spurred by renewed violence in Iraq and fresh evidence that strong demand growth in China and India has not yet been slowed.
The spike raised fears that the psychologically important $50 mark could be breached soon.
U.S. light crude for September delivery rose $1.43 to close at $48.70 on the New York Mercantile Exchange (search) — the highest Nymex settlement on record. On London's International Petroleum Exchange (search), Brent crude futures for October delivery soared $1.30 to $44.33 per barrel.
{{#rendered}} {{/rendered}}Rising world oil demand has left little slack in the system to cope with outages in Iraq where Shiite militia have said they will target oil infrastructure if U.S. forces do not leave the holy city of Najaf.
In real terms, adjusted for inflation, oil prices are still well below 1980's peak of $80 a barrel, following the Iranian revolution. But average U.S. prices this year are approaching those of 1974, the first oil shock, when crude averaged an inflation-adjusted $43 during the Arab oil embargo.
Fierce fighting raged in Najaf on Thursday after rebel Shi'ite cleric Moqtada al-Sadr (search) defied an Iraqi government threat to attack his stronghold in a holy shrine and rejected demands that he end his uprising.
{{#rendered}} {{/rendered}}Iraq's main southern pipeline from the Basra oilfields has been shut since a sabotage attack on Aug. 9, curbing export flows to about a million barrels daily, half normal rates, through a secondary line.
Iraq's oil minister said that exports would not be restored until the security situation improved. "Once things return to normal (exports) will be back to normal," Thamir al-Ghadhban told Reuters.
Demand growth in emerging economies China and India has shaken up the oil market this year, intensifying competition for supply with established consuming giants such as the United States.
{{#rendered}} {{/rendered}}China's refineries have processed 17.2 percent more crude so far this year than in 2003, the country's State Statistical Bureau said on Thursday. Crude imports to end-July have soared nearly 40 percent from last year.
India's biggest refiner, state-run Indian Oil Corp. Ltd. (IOC), said it expected India's crude oil imports to rise by 11 percent in 2004/05 as demand rises by nearly four percent. "Refineries are running flat out," said IOC chairman M.S. Ramachandran.
In the United States, which guzzles around a quarter of the world's oil, demand so far this year is up 3.4 percent, stopping inventories building much as rising consumption absorbs extra imports from OPEC producers such Saudi Arabia.
{{#rendered}} {{/rendered}}U.S. government data for the week on Wednesday showed commercial crude oil supplies had fallen 1.3 million barrels to 293 million barrels last week, the third straight week of declines.
As prices spike, analysts continue to be wary of Organization of Petroleum Exporting Countries (search) claims it could raise its production capacity immediately to meet demand and cool prices.
"It's a Catch-22. There isn't much more capacity and even if OPEC increases it, it won't cause any significant dent because there is still instability around," said Shum.
{{#rendered}} {{/rendered}}"Then what happens? There is even less spare capacity and it will make the situation worse psychologically."
Reuters and the Associated Press contributed to this report.