October 16, 2007
Next stop $90
US crude has gone roaring ahead to within a few cents of $88, as speculators get the bit between their teeth. You can watch Javier Blas talking about where oil goes next here.
The latest trigger has been identified as the threat of Turkish military action against Iraqi Kurdistan, which could disrupt Iraq’s oil exports through the northern pipeline from the Kirkuk field. But the flows through that pipeline are very small, averaging only about 100,000 b/d this year because of regular attacks, although they have been building up recently, leading - ironically - to talks about a more regular supply contract with Turkey.
The underlying reason for the price surge is that oil inventories are dropping, and look likely to be tight over the winter, as the International Energy Agency pointed out last week. Today’s soaring prices look like conclusive proof that the 500,000 barrel a day output increase agreed by Opec in September, which takes effect in two weeks’ time, definitely was too little, too late.
The next Opec meeting, the summit in Riyadh on November 17-18, looks a long, long, way away.
UPDATE: Oil has powered through $88, meaning that it has put on about $4 in two days. Opec has issued a statement saying it "does not favour oil prices at this level", but blaming everyone else for the surge in prices.
It says: "The rising oil prices which we are currently witnessing are, however, largely being driven by market speculators. Persistent refinery bottlenecks and seasonal maintenance work, ongoing geopolitical problems in the Middle East and fluctuations in the US dollar, also continue to play a role in pushing oil prices higher. Additional political tensions, seen during recent days, are also pressurizing oil prices upwards."
With that lot ranged against it, it is hardly surprising that Opec has lost control of the market.
Meanwhile, Goldman Sachs must be feeling pretty smug.
