Oil futures back off record-high $87
Middle East output risks, falling U.S. crude supplies keep crude north of $86
Despite the bout of profit taking, Turkey’s threats to pursue Kurdish separatists in northern Iraq and declining U.S. inventories built convincing support under crude prices at the lofty levels.
Rumors and events, particularly the tension between Turkey and Iraq, “kept churning the market,” said Charles Perry, chairman of energy-consulting firm Perry Management.
While profit-taking may be the order of the day ahead of the U.S. petroleum inventory reports due Wednesday, “it appears to me that the real thing driving this market up is the realization that we are in short supply, and it is not getting any better,” he said.
Crude for November delivery last traded at $86.50 a barrel, up 37 cents on the New York Mercantile Exchange. The contract traded as high as $87.97 a barrel in the overnight electronic session.
The contract climbed $2.44 on Monday to mark a front-month record closing level of $86.13.
At the moment, “the world is awash in little news items that impact the market,” said Perry. “But if we were not already in short supply, the market could stand these minor events.”
Among the bigger news items impacting oil, Turkey’s government asked parliament late Monday to approve a cross-border offensive against Kurdish rebels in Iraq, according to the Associated Press.
Oil traders have been concerned that the potential conflict will result in a disruption to oil output in the region.
Meanwhile, there was speculation over a potential storm building in the Caribbean and a report that production from the Organization of the Petroleum Exporting Countries was down more than 100,000 barrels per day, Perry said.
In its monthly report released Monday, OPEC added to the supply fears when it predicted non-OPEC countries will produce 110,000 fewer barrels of oil per day than expected in the fourth quarter, even as demand for crude oil will grow by 100,000 barrels a day compared with last year.
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Overbought oil?
Perry said he doesn’t expect to see $90 oil this week, though that level may be reached in two to four weeks.
The path of least resistance for crude seems to be higher still, said Edward Meir at Man Energy. “Although, like many others out there, we are hard-pressed to justify such high valuations,” he said.
John Person, president of NationalFutures.com, warned that oil prices may be overbought somewhere between $85 and $87.50.
“This may have been the threshold high for the time being,” he said in emailed comments.
Overall, “prices are seen as out of control and are in a spot where it can now jeopardize global economic stability,” he said.
“China, European and American consumers will become more frustrated, and this can lead to changes in consumption habits, as well as potential releases in SPRs (strategic petroleum reserves) by governments to ease prices.”
Refined products give back gains
Crude’s record highs failed to support the refined products futures, with both heating oil and gasoline slipping narrowly into the red.
Heating oil for November delivery was last down 0.4 cent at $2.3041 a gallon, and reformulated gasoline for November was off 0.8 cent at $2.149 a gallon, tumbling off an overnight contract high of $2.2019.
The Nymex November natural-gas contract was off 3.4 cents at $7.415 per million British thermal units. End of Story
Myra P. Saefong is MarketWatch’s assistant markets editor, based in San Francisco.