Royal Dutch Shell Plc  .com Rotating Header Image Oil Rises to Record Above $98 a Barrel

Nov 7 01:58 AM US/Eastern
Associated Press Writer

SINGAPORE (AP) – Oil prices jumped to a trading record above $98 a barrel Wednesday amid expectations of declining U.S. supplies and following news of an attack on a Yemeni oil pipeline.

Light, sweet crude for December delivery rose as high as $98.03 a barrel in Asian electronic trading on the New York Mercantile Exchange.

The contract Tuesday hit a high of $97.10 before closing at $96.70 a barrel, a record settlement.

“The oil market sentiment remains bullish … there is an overall upward trend toward the $100 level,” said Victor Shum, energy analyst with Purvin & Gertz in Singapore. “Meanwhile, we can expect extreme volatility where on the one hand some traders will take profit while others will buy back positions.”

Traders remain worried about whether supplies will be adequate to meet demand for heating fuel in the approaching Northern Hemisphere winter. News of an attack Monday on an oil pipeline in Yemen added to those concerns.

Figures to be released later Wednesday by the U.S. Energy Department’s Energy Information Administration are expected to show crude supplies dropped last week. Analysts surveyed by Dow Jones Newswires predict, on average, that crude oil inventories fell by 1.6 million barrels.

“The price rise is really driven by expectations of drawdowns in crude oil and distillate stocks inventories in the U.S. inventory report,” said Shum. “Some cold weather reports out of the U.S. and Europe serve as a reminder that winter is coming and that there are still supply concerns.”

Oil inventories likely fell due to a suspension of output at Mexico’s state oil company Petroleos Mexicanos, a major crude exporter to the United States, which temporarily shut its ports last week due to severe weather.

On Tuesday, the EIA predicted oil consumption will rise in the fourth quarter and next year despite higher prices, and that inventories will fall.

“Strong demand, limited surplus capacity, falling inventories and geopolitical concerns continue to weigh on the market,” the EIA said in its monthly Short-Term Energy Outlook.

The weak U.S. dollar, which fell to a new low against the euro Tuesday, is also lifting oil prices. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.

Analysts also expect the EIA to report Wednesday that gasoline inventories rose by 200,000 barrels during the week ended Nov. 2, while supplies of distillates, which include heating oil and diesel fuel, fell by 500,000 barrels.

The analysts expect that refinery use grew by 0.8 percentage point to 87 percent of capacity.

In London, Brent crude rose 78 cents to $94.04 a barrel on the ICE Futures exchange. A number of North Sea oil platforms were being evacuated Tuesday ahead of expected severe weather.

Heating oil futures added 2.89 cents to $2.6367 a gallon, while gasoline prices rose 2.4 cents to $2.459 a gallon.

Natural gas futures rose 6.2 cents to $7.925 per 1,000 cubic feet.

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