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Oil leaps to record over $93 on Mexico, dollar

LONDON - Oil leapt to a record high for a third day on Monday, surpassing $93 as Mexico briefly halted one-fifth of its production and the US dollar struck new lows.

Published: Mon 29 Oct 2007, 4:58 PM

Updated: Sat 4 Apr 2015, 11:30 PM

  • By
  • (Reuters)

US crude, which hit a high of $93.20 a barrel earlier, was up 79 cents at $92.65 by 1015 GMT. London Brent, which hit a record high $90, was up 71 cents at $89.40.

Oil prices have soared by more than a third since mid-August as a stand-off between Turkey and Kurdish rebels, dollar weakness, easing interest rates and winter supply fears attracted a fresh wave of investment capital.

Prices rose on Monday after Mexico’s state-owned oil company Pemex said it was shutting about 600,000 barrels per day (bpd) of oil output due to bad weather in the Gulf of Mexico.

A spokesman said Pemex should be able to resume output immediately once the cold weather passed in two days. Mexico’s three main export terminals were shut on Sunday.

The dollar hit another record low against a basket of currencies on expectations the Federal Reserve will trim interest rates this week and possibly again this year.

Central banks have poured billions of dollars into financial markets to ease a liquidity crisis. Much of that money has found its way into enery, commodities and emerging markets.

Gains in oil accelerated amid unusually heavy trade of 16,000 lots on the US front-month contract, with some traders pointing to short-covering by options players or technical stop levels around the $93 a barrel mark.

‘In our view, implied volatility in crude oil options looks attractive... In addition, crude oil volume also looks attractive relative to volume in other asset classes,’ Merrill Lynch analysts wrote in a research note.

Political tensions

OPEC has shrugged off calls from importer nations to raise output, saying politics and speculation—not a supply shortfall—are to blame.

‘I haven’t any signal that there is any shortage of crude... I believe a big portion of the oil price today is related to geopolitics and fear factors, and we cannot solve it,’ Qatari Oil Minister Abdullah Al Attiyah told reporters in Doha.

‘Sometimes there is a shortage of oil products but not of crude. This is because of limitations of refinery (capacity). Consumers and producers should invest more in refining. We don’t have a magic stick to solve this.’

The possibility of a large-scale Turkish incursion into northern Iraq to root out Kurdish rebels is also keeping the oil market on edge. The tension has sparked worries of a broader conflict in the oil-rich Middle East.

Turkey’s foreign minister Ali Babacan, speaking on Sunday after talks aimed at averting a Turkish incursion into Iraq, said diplomatic and military operations could both be used.

‘There remain concerns that oil market conditions are tightening and geopolitical tensions are also continuing to add a premium to oil prices,’ said David Moore, a commodities analyst at the Commonwealth Bank of Australia.

‘The demand momentum for oil remains strong and supply is still constrained,’ Merrill Lynch said.

‘While US oil demand is only running modestly above last year, demand in emerging economies has continued to grow on the back of a combination of subsidies (Middle East) and price caps (China/India).


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