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Reuters: Shell CFO says speculators driving record oil price

Thu Oct 25, 2007 7:53 AM ET

By Alex Lawler

LONDON, Oct 25 (Reuters) – Royal Dutch Shell Plc’s Chief Financial Officer said on Thursday that oil prices at a record high are being driven by speculation and political tension, not a lack of supply.

The comments are the first from an executive of a Western oil company agreeing with the view of the OPEC exporters’ group that oil’s surge to a record peak largely reflects speculative trading, not supply shortages.

“The price seems to be driven by some speculation and also has a political premium in it, rather than actually some of the fundamental drivers,” Shell CFO Peter Voser said at a news conference.

Earlier on Thursday, Brent crude hit an all-time high of $86.28 a barrel after a decline in inventories of crude in the United States renewed fears of a supply crunch during winter, when demand peaks.

Voser, by contrast, said oil inventories were sufficient and a drop in the profit margins from turning crude oil into usable fuels such as gasoline also pointed to ample supply. “We find it hard to explain the current prices because at the end of the day you do not see anyone queuing for fuels and nor are there any physical shortages,” he said.

“Crude inventories look well supplied and refining margins have been lowered, which is an indication of a well supplied market.”

In addition, assaults by Turkish troops on Kurdish separatists in northern Iraq have added to tension in the Middle East, source of almost a third of the world’s oil.

Voser was speaking after Shell reported an 8 percent drop in third-quarter profit as oil and gas production and refining margins fell, but the underlying result beat all forecasts. [nL25185605]

Others in the industry, such as the U.S. Energy Information Administration, argue that the oil market is tight and that the Organization of Petroleum Exporting Countries needs to pump more oil.

OPEC, source of more than a third of the world’s oil, is due to raise supply by 500,000 barrels per day next month in a gesture to consumer nations worried about the economic impact of record prices.

Voser noted that a drop in the value of the dollar, the currency in which oil is traded, had softened the impact of record oil prices on some consuemrs.

“The dollar is relatively weak and this does shield some regions such as Europe from too-high prices.”

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