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oil prices could remain high

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    Oil price hits fresh peak as output fears add to pressure
    Thursday February 21, 2008

    Oil at US$100

    Oil surged nearly 5 per cent yesterday to hit a record of more than US$100 ($126) a barrel and analysts say its commodity status could mean prices stay around that high.

    United States crude hit US$100.10 a barrel, a cent higher than the previous high struck on January 3. It later slid below triple figures.

    The spike came as speculation grew Opec will not increase output to ease high prices despite recession fears in the biggest consumer, the United States.

    Erroneous reports that a Nigerian oil delta rebel had died raised worries about supplies from the Opec country.

    Worries about the economic health of the United States pushed oil off its January record peak, but signs that Opec will hold or even cut output when it meets on March 5 sent prices back to triple digits.

    A fire at a Texas refinery, maintenance shutdowns at other plants in the US and tensions between oil giant Exxon Mobil and Venezuela over the takeover of an oil project also helped boost prices.

    An energy analyst at McDouall Stuart Securities in Wellington, John Kidd, said there appeared to be strong underlying pressure on prices.

    Towards the end of last year when the oil price was starting to spike severely there were concerns over prospects for conflict in the Middle East and US stockpiles.

    "Both of those have died down it seems. What you're possibly seeing is a longer term trend.

    "With nervousness around in riskier type products people do tend to head back to what they know and commodities are certainly it."

    Exploration and extraction costs were starting to bite.

    "There's quite a bit to support the prices we're seeing in terms of raw economics at project level. There's been a lot of money made by oil companies in the last little while but it's not all gold."

    The worldwide shortage of not only the resource but also expertise was flowing through to cost pressure.

    Mark Johnson, an adviser for OMFinancial, said a late scramble to buy at the end of the current physical delivery contract period was partly responsible for sending oil to the record price.

    However, there were strong undepinning factors that could keep it high.

    Like Kidd, he said commodities, including oil, were increasingly being seen as safe havens at times of global financial stress and oil prices could remain high.

    "On that basis there is still upside. Where can it be at the end of the year - another 10 per cent is entirely possible," Johnson said.

    "The [New Zealand] consumer is benefiting from a very high exchange rate right now but the question is how long can it last?"

    But the oil price news is good for the Tui field off the Taranaki coast which has been in production since last July and is on track to produce nine million barrels by the end of this month.

    New Zealand Oil and Gas has a 12.5 per cent stake in the field whose light sweet crude is sold against the premium Tapis benchmark.

    A spokesman yesterday said the price had cracked the US$100 barrier for the past fortnight, after averaging US$89 since production began.
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