Oil Traders Stamp $60 A Barrel, How Far is $70?

    June 27, 2005

Oil prices continue to skyrocket like a titan rocket this as demand heats up, production has no real growth right now and worldwide demand continues to shoot through the roof. The price hit $60.85 in morning trades on the New York Mercantile Exchange.

The new high continues to move up as all industry watchers speculate about where the price is going to peak. With consumption continuing to climb in both the U.S. and abroad, traders are terrified producers won’t be able to meet demand in the coming months.

Oil Traders Stamp $60 A Barrel, How Far is $70?

The most recent energy report by the EIA suggested inventories rose in both distillates and gasoline but crude levels dropped overall. Traders are figuring producers won’t be able to make up the difference any time soon.

In order for prices to keep climbing like this a couple of things had to happen. First, the production levels had to be like a marine haircut: high and tight. Right now, OPEC pumps just about as much oil as physically possible. Saudi may be able to tap more but it’s going to be sour crude meaning it has a fairly high sulfur content. That’s the high part.

The tight part comes from the fact that since production levels are at their peak, then that production is also stretched extraordinarily thin. One problem in the supply chain anywhere and it will drive up the price. A hurricane ripping through the Gulf of Mexico or security issues in Nigeria or perhaps an anti-western election in Iran could all be construed as a threat to the supply chain. Unfortunately, all of these incidents have occurred in recent weeks fueling the bulls as the charge through the market.

Refineries also play a big part in this meat loaf of oil. Refineries are running at capacity too and as has been stated in the past, the U.S. hasn’t built a new refinery in 30 years. Many critics claim the real problem with oil is that it’s bottlenecked at key countries’ refining capacity. The refineries won’t be able to put out enough gasoline to meet demand for the summer while at the same time, put enough distillates to fill inventories for the 4th quarter when heating oil supplies kick up.

Honestly, $70 a barrel seems likely in the next few weeks. Then the June contract closed on crude, the prices was below $50 a barrel. The price on the close of July was just shy of the $60 mark. Oil prices went up around $10 last month. If that trend holds, who knows where the gasoline prices will go.

John Stith is a staff writer for WebProNews covering technology and business.