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October 17, 2007
Oil Prices Climb Toward the Century Mark
The spike in oil prices continued yesterday as November crude prices topped $88 bbl for a while yesterday, closing at a record $87.20 bbl:
Oil traders, discussing the latest rise, cited a potential conflict on the border between Turkey and Iraq that could heighten Middle East tensions and possibly affect oil supplies from the region. It's speculators who are driving up the price, worried about tight supplies and any possible world event that could impact those supplies. Most analysts expect the price to drop in the coming weeks as it becomes clear that supplies will not be unduly affected by what is happening in the Middle East.
“Markets hate uncertainty,” said Lawrence J. Goldstein, an economist at the Energy Policy Research Foundation. “The fundamentals are very supportive of high oil prices.
But the latest run-up has nothing to do with market fundamentals, but has to do with fear.” Since the American invasion of Iraq in 2003, oil exports from northern Iraq through Turkey have been sporadic at best because of frequent bombings of Iraq’s northern pipeline.
But as oil producers worldwide are straining to meet demand, commodity investors are focused on anything that might hurt supplies. Turkey is an important corridor for oil exports from Iraq and the Caspian Sea. The Turkish military has threatened in recent days to cross the Iraqi border to root out Kurdish separatists who have mounted attacks inside Turkey.
Meanwhile, prepare to pay more at the pump by Thanksgiving as refiners pass along the increased price to their customers. Any interruption in supply from a major oil producer would cause the markets to begin their upward climb again with some analysts believing we will hit the magic $100 bbl by March.
Others scoff at the notion of $100 bbl pointing to market brakes that would prevent it such as economic downturns in the west that would cause a fall off in demand or OPEC nations stepping in and increasing supplies.
All bets are off if we attack Iran, of course. No one knows how high the price of oil would go if that were to occur but some are predicting more than $125 bbl - especially if we were to bomb Iranian oil fields. But that is not an immediate concern for the speculators who are driving up the price today.