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Oil prices jumped above $98 a barrel Wednesday, a new record, amid expectations of declining U.S. supplies. The falling dollar and OPEC's apparent reluctance to pump more crude into the market also boosted prices.

Light, sweet crude for December delivery surge $1.25 to $97.95 a barrel by midday in Europe after earlier reaching as high as a record $98.62 in electronic trading on the New York Mercantile Exchange.

The contract hit a high of $97.10 Tuesday before closing at $96.70 a barrel, a record settlement 66 percent higher than the close on the first trading day of the year.

In London, Brent crude rose $1.31 to $94.57 a barrel on the ICE Futures exchange. A number of North Sea oil platforms were evacuated Tuesday ahead of expected severe weather, and BP PLC said it expects to shut production Thursday from its Valhall oil and gas field.

"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."

On Tuesday, the U.S. Department of Energy's EIA said oil stocks in the countries of the Organization for Economic Cooperation and Development are forecast to fall this winter, ending the year at the lowest level since January 2005.

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