Oil Prices Soar on Middle East Unrest
July 13, 2006 — -- Increasing military action in Israel and Lebanon, a lack of resolution on the Iran nuclear issue and two suspected bombs on a Nigerian oil pipeline sent the price of crude soaring today.
Traders bid the cost of a barrel of light, sweet crude to a new nominal record of $76.70. That's $1.75 (2.3 percent) higher than the price at close yesterday and represents the biggest upward percentage move since June 2. Intraday highs saw a price of $76.85. Prices continued climbing in after-hours electronic trading, when volumes are significantly lower, to $78.35.
"Frankly, there is no good news for consumers in any time frame," said Addison Armstrong, energy trader at TFS Energy. "That is, until high energy and other commodity prices push global inflation high enough that demand gets choked off by central banks stepping in and raising interest rates even more aggressively than they have done to date."
Oil prices are up by about 12 percent since their recent lows (June 13), and that will translate almost immediately into higher prices at the pump for Americans. According to government figures, the average price of a gallon is now $2.97, just a dime lower than the all-time nominal high set immediately after Hurricane Katrina took out a third of the nation's refining capacity.
Analysts expect to see $80-a-barrel oil in the coming days if the Middle East conflict between Israel and its neighbor to the north, Lebanon, is not resolved. Israel and Lebanon do not produce any significant amount of oil, but there is fear that the conflict could affect the output of major oil-producing states like Iran or Saudi Arabia.
If tensions do result in disruption to world supplies, prices could spike to levels never seen before.
"One hundred dollars [a barrel] is certainly in the realm of possibility if a major hurricane was to strike the Gulf of Mexico oil infrastructure, or a major U.S. refinery were to trip offline," said Armstrong.
Today there's no extra production capacity anywhere in the world … and there's rising demand for energy worldwide.
A government report out this week shows that demand for motor gasoline in the United States is almost 2 percent higher than last year, an amazing fact because retail gasoline prices are making a fill-up more expensive than ever.
