Oil hits US$100 level!

Jan 4, 2008

Oil hits US$100 level. Fears of lower US stockpiles and concerns over supplies spark price jump

CRUDE oil kicked off the new year by touching US$100 (S$144) a barrel for the first time.

The historic event was widely anticipated by economists and traders but still struck a raw nerve among global leaders, policy-makers and the man in the street.

A witches' brew of surging demand, fears of supply disruptions and speculative trading provided the impetus that saw the 100-buck-a-barrel level finally breached.

Violence in Nigeria, Africa's largest oil producer, was the most visible trigger. At least 12 people were killed over the New Year in the oil centre of Port Harcourt.

There was also fear that data expected late last night would show that United States energy stockpiles had fallen again.

US reserves, which often function as a safety net in the oil industry, fell by over three million barrels to 293.6 million barrels two weeks ago, the sixth consecutive weekly decline.

Booming economic expansion in China and India has added to surging global demand for oil.

Hedge funds and other traders were also behind the price surge with many piling into crude as well as other commodities such as gold, platinum and palm oil futures to shield themselves against inflation and a weak US dollar.

These three commodities rose to record highs yesterday. Reaction to the landmark price reached on the New York Mercantile Exchange after midnight on Wednesday Singapore time was varied.

The Organisation of Petroleum Exporting Countries said it will not ease price pressure by ramping up supply.

And US President George W. Bush said he would not tap into the country's strategic reserves to ease prices as the stockpile was reserved for 'emergencies'.

But Cambodian Prime Minister Hun Sen yesterday banned the use of state vehicles for anything other than official business to save petrol.

Economists in Singapore did not believe the latest price hike would send the global economy into a tailspin.

Citigroup's Chua Hak Bin said: 'It's just a number, albeit a big one. The key question is, will it keep going up at this pace.

'In Singapore, it comes at an uncomfortable time with inflation already at 25-year highs and hikes in public transport fares and electricity.'

OCBC's Ms Selena Ling agreed: 'Pump prices went past the $2-mark for all but one grade of petrol last month.'

She said oil could hit US$110 in the near term but ease after six to 12 months. 'If recent signs are correct and the global economy slows down, it is unlikely that the demand driving high oil prices will be sustained,' she said.

United Overseas Bank's head of economics and treasury research, Mr Jimmy Koh, felt the impact will be more psychological than economical: 'Are we seeing people pushing their cars on the road? No.'

But businessmen with operations closely linked to the oil industry are already feeling the impact. Mr Steven Lee, 56, who owns charter bus services company Westpoint Transit, said overall costs had risen 20 per cent in the past two years due to dearer diesel.

'The prices we charge our customers have gone up by 15 to 20 per cent. We haven't experienced a significant drop-off in customers but we have lost maybe 5 per cent of our clientele in that period.'

'I hope the price does not go up any higher. There's only so many times we can go knocking on customers' doors to say we are raising prices.'