Oil price passes $100 a barrel for first time
Oil price passes $100 a barrel for first time - close to 1980 all-time real dollar high; Price was at $10.72 in December 1998
By Finfacts Team
The price of crude oil on the New York Mercantile Exchange (NYMEX) on Wednesday hit a record $100 a barrel for the first time, rising by more than $4 on the day. The price of Brent in London also hit a new record of $97.05, up $3.
Only one trade was made above $100 on NYMEX but it was a key psychological threshold and compared with 1998 when there was a glut of oil. On Dec. 10, 1998, crude oil futures fell to a low point of $10.72 on the NYMEX.
Analysts said that the price surge was triggered by violence in OPEC members Nigeria and Algeria, together with a decline in the US dollar and low level of US energy stocks at the peak demand period in the American North-East.
The falling US dollar boosts demand for dollar-priced commodities such as oil and gold, which also hit a new record of $859 an ounce on Wednesday, breaking the record that had been intact since January 1980 when it hit $850 after the Soviet invasion of Afghanistan and the Iranian revolution.
Oil rose almost 58% last year, the biggest annual gain this decade, after reaching a previous record $99.29 a barrel on November 21st as the dollar fell and US oil reserves fell.
The Paris-based International Energy Agency says the actual real-time record (inflation adjusted dollars) was reached in the spring of 1980 and is $101.70 in today's dollars.
The World of $100 Oil
A combination of increasingly difficult to access new oil resources as huge older fields face depletion; more success for the oil cartel OPEC in controlling supply; a surge in demand from Asia in recent years; increasing interest from market players in investing in oil futures and subsidies for consumers in many countries in the Middle East and Asia in particular, has underpinned the price.
In 2004, global demand rose by 2.8 million barrels a day, to 82.3 million barrels a day. Almost one-third of that growth came from China.
The Wall Street Journal reports that the number of oil-futures bets from investors outstanding on NYMEX has quintupled since 2001. Because oil has been rising at the same time, the dollars at stake in the main oil-futures benchmark, not including options, rose from roughly $7 billion in 2001 to more than $145 billion, calculates Ben Dell, energy analyst at Sanford C. Bernstein & Co.
As this surge of money chased a slowly growing number of barrels, prices sprinted upwards. And there is little to indicate that the conditions created by these financial commodity traders will push prices down anytime soon.