Crude oil futures touched $60 again on Friday as growth in global demand continued to outpace supply, adding to concerns about a supply squeeze from well-head to pump.
Oil traders said the next stop could be $65 a barrel, and a fall back below $50 looked increasingly unlikely before the year-end.
Nauman Barakat, a senior vice president of energy trading at Refco in New York, said the rise in prices was demand-driven – particularly demand for petroleum products such as petrol, diesel, jet fuel and heating oil.
This week’s crude oil inventory report from the US Department of Energy showed US demand for distillates, which include diesel, jet fuel and heating oil, had grown faster this year than gasoline demand; the four-week average for total distillate demand is about 7 per cent higher than last year, while the four-week average demand for finished gasoline is 2.5 per cent higher.
The department also noted distillate demand is strong in Europe, where diesel car sales account for more than half of new car sales, and in China, where demand for distillates is twice that for petrol, and overall demand is growing rapidly.
“So far we have seen no demand destruction from higher prices,” said Mr Barakat. “The market is still wondering how far prices have to go before demand wanes.”
Oil demand is closely linked to global economic growth, which is expected to rise by almost 4 per cent this year. Energy analysts expect global oil consumption to rise by about 2m barrels a day, which is above the long-term average and higher than the amount of crude oil production and petroleum product refinery capacity to be added this year.
With demand rising faster than supply, traders are factoring in a tight oil market for at least another 12 months.
August West Texas Intermediate futures settled 42 cents higher at $59.84 a barrel in on the New York Mercantile Exchange, after touching $60 earlier in the session and matching Thursday’s peak. WTI contract prices, which have risen 37 per cent so far this year, are quoted at more than $60 a barrel until June 2006.
Mr Barakat said more investors were making bets on higher prices through the options market, putting money on $65 and $70 WTI call options this week.
The rise in the August WTI price narrowed the discount to prices later in the year, which traders said could represent a shift from the market’s current contango price structure to backwardation. Contango is when nearby prices trade at a discount to forward prices, and backwardation is when nearby prices trade at a premium and is the usual pricing structure in any commodities market.
IPE Brent for August delivery rose 40 cents to $58.36 a barrel in London, down from its intraday high of $58.51 and lower than its record of $58.58 struck on Monday. Brent prices are up about 47 per cent this year.
In petroleum products, July gasoline futures were steady at Thursday’s close of $1.6587 a gallon. Gasoline futures are still below the record of $1.7491 hit on April 4, but 52 per cent up on the year to date.
July heating oil futures, which are also a proxy for diesel and jet fuel, on Friday moved closer to eclipsing the record of $1.6950 a gallon reached in April. At that point the price touched $1.6840 a gallon, before easing to $1.6742 later in the session. It has now risen almost 37 per cent since the start of the year.
In London, July gasoil futures, which are also a proxy for diesel, gained $2.50 to $528.50 a tonne, up more than 40 per cent on the year, but below the contract’s record peak of $542 a tonne in April.
The higher prices have forced investment banks to revise up their price forecasts. Merrill Lynch raised its Brent crude price forecast for 2005 by $4 to $49 a barrel. Deutsche Bank signalled that its estimates of an average of $45 a barrel for Brent in the second half of this year were too low.
