By Jason Simpkins
Violence in Nigeria and concerns that U.S. refiners are struggling to produce enough gasoline helped crude oil prices rise again last week, moving the price of this key commodity closer to its all-time high of $78.65. And now some analysts are predicting that $80 a barrel crude oil is well within reach.
Gasoline prices rose late last week for the first time in a month, echoing a $1 a barrel spike on the oil-futures market, where another 10-month high was reached Friday.
The national average price of a gallon of gasoline edged up 0.3 cents to reach $2.952, according to AAA and several oil-information-services firms. Retail prices – which typically lag oil-futures prices – had declined fairly steadily since peaking in late May at a record level of $3.227 a gallon.
Oil futures have jumped in the past few weeks over worries about U.S. refinery capacity, the approach of peak-driving season, and increased demand for crude oil as refineries come back on line.
Experts have argued that this has to translate into higher pump prices, but so far it hasn’t. Last week’s price action may represent the expected reversal.
Nigeria has been credited for a recent rise in crude oil prices, which have peaked at an 11-month high. The price of London Brent crude oil traded as high as $77.20 – $1.45 shy of the all-time record set last August – before closing at $75.62, up 82 cents a barrel on Friday.
Spurring the rise in crude oil price is a recent upswing of political violence, particularly in Nigeria, which is Africa’s largest producer of crude oil. A one-month truce between rebel groups (notably The Movement for the Emancipation of the Niger Delta) and the Nigerian government has expired. This has resulted in an attack on a Royal Dutch Shell oilrig, and the abduction of a 3-year-old British girl on her way to school in Port Harcourt.
Nigerian oil production has fallen off by nearly 20% over the past two years as militants demanding control over the country’s oil revenue attacked facilities and abducted workers.
Nigerian crude is considered to be of a very high quality. Victor Shum, an industry consultant, told Bloomberg News that “it’s easier to refine and has a higher yield of gasoline compared with most OPEC crudes.”
Although U.S. crude-oil stores are at a nine-year peak, the production from number of refineries has been falling. According to the Energy Information Administration, refinery utilization rose by 0.6% when analysts had expected a 1.1% increase. Several refineries have reported outages recently, which makes it unlikely that production runs will increase any time in the near future.
Additionally, the U.S. market has just entered its peak-driving season, the July 4th holiday being only its first hurdle. Growing demand from such resource rivals as China will continue to escalate, and a weak U.S. dollar will magnify the costs of crude oil imports. Now, terrorist fears stoked by the attempted bombings in London, the attack on the Glasgow airport, and the resumption of political discord in Nigeria will likely exact a serious toll on gas prices.
Also throwing weight behind the likelihood of a price-hike, OPEC, comprised of 12 oil-producing nations, has reduced its output. The International Energy Agency, which represents 26 of OPEC’s biggest customers, has repeatedly asked the organization to boost its production, but the cartel members have refused.
With all these factors at play, speculator Mark Mathias of hedge fund Dawnay Day Quantum told the Reuters news service that he is “looking for oil to test $80 again this year.”