Crude oil futures started and ended the week with a bang. The US benchmark, West Texas Intermediate, hit a high of $60.85 a barrel on Monday and ended on Friday with a surge of $2.25 to close at $58.75.
The WTI price was pushed up by a late jump in US heating oil and gasoline futures ahead of the Independence Day holiday weekend. August Brent was $1.96 cents higher at $57.54 a barrel in late afternoon trade.
Sheikh Ahmad al-Fahad al-Sabah, the president of the Organisation of the Petroleum Exporting Countries, said this week that $53 was an “ideal price” for WTI and that Opec would only start talking about increasing the cartel’s production quota when WTI prices moved above $60 again.
Paul Horsnell, head of energy research at Barclays Capital, said that if Opec was talking about $53 as a good price for oil, it would equate to a $50 price for the Opec basket of crude export prices.
“If they are talking about $60 before they start talking about raising the quota, then that equates to about $57 for the Opec basket, which seems to be their unofficial upper limit,” said Mr Horsnell. This price range for Opec is more than double the $22 to $28 price band the cartel suspended in January.
“Opec hasn’t been bullish on the price, it is more a reflection of reality,” said Mr Horsnell.
Barclays forecasts WTI prices to average about $60 in the third quarter.
One factor that pushed oil prices to its record levels was concern about fourth quarter demand and whether there would be sufficient supply to meet the increase in seasonal demand.
The US Department of Energy said this week that fears of product supply tightness may turn out to be greater than reality.
It said the last three key US product seasons – petrol in 2005, heating oil in 2004-05 and petrol in 2004 – showed a much more dramatic reaction prior to the peak season than the previous three product seasons. Expectations of high prices later are reflected in higher prices prior to the peak seasons, thus giving refiners and importers economic incentive to have enough supply available to actually bring prices down at the beginning of the peak demand season,” department officials said.
“Whether this pattern holds true again for the upcoming winter season remains to be seen.”
