The price of oil jumped to an 11-month high yesterday, moving even closer to record levels hit last summer as fears mounted over shortages in supply.
Speculation in the world’s most actively traded commodity, rapidly rising demand and reports that production would slow over the next five years pushed Brent crude up to $77.07 briefly during early-afternoon trading, within $2 of the all-time high of $78.65 set last August.
Investors said hedge funds and pension funds were key drivers behind the latest rally. "This rally is very much fund driven," said Graham Sharp, director at Trafigura, a commodities trading group. "The entry of long-only hedge funds into the market is a major factor this time around. We wouldn’t rule out Brent hitting $80 this summer."
Maintenance work on oilfields in the North Sea has tightened supplies and helped push Brent, seen as the best indicator of the global market, significantly higher.
The unexpected closure of a North Sea pipeline this month cut oil output from at least one group of fields, operator ConocoPhillips said. Chevron’s Erskine field, which produced an average of 10,705 barrels a day in March, has also been affected by the shutdown.
The market has been jittery all week after the release of the International Energy Agency’s medium-term oil market report warning that demand would increase faster than expected over the next five years while production would struggle to keep up. Traders are nervously awaiting the IEA’s latest monthly report out today, which will give an updated snapshot of global oil demand and stocks.
Data from the US Energy Information Administration showed gasoline stocks in the world’s largest consuming country remained 8.2m barrels lower than a year ago, and the summer driving season there is expected to last at least another month.
Members of the Organisation of the Petroleum Exporting Countries have refused to bow to calls to pump more crude in an attempt to lower prices.
Saudi Arabia’s oil minister, Ali al-Naimi, said tightness in supply and international political tensions were pushing prices higher.
Another three-year-old was kidnapped in Nigeria yesterday, four days after a British girl was released by her kidnappers. The Nigerian boy was snatched from the oil-rich Niger Delta, which has seen many violent attacks recently, pushing up the price of gas and oil.
Later in the trading session, the oil price subsided as the US gasoline market fell sharply on news that a number of refineries were restarting units that had been out of production.
Economists are growing concerned about the renewed surge in oil prices, warning that it could keep upward pressure on inflation in many countries.
Jonathan Loynes, of Capital Economics, said: "The recent renewed rise in oil prices has put something of a dent in the chances that falling energy inflation will bring overall consumer price inflation back into line with the monetary policy committee’s 2% target over the coming months."