Oil Settles Above $80 For First Time
Oil hit an all-time high over $80 per barrel Thursday after Hurricane Humberto forced the closure of some U.S. Gulf refiners, stoking concerns of fuel supply shortfalls.
U.S. light, sweet crude for October delivery traded up 9 cents to $80.00 per barrel by mid-afternoon, after hitting a record $80.20 earlier.
London Brent crude gave up 23 cents to $77.45 per barrel.
U.S. gasoline futures soared in early activity after Hurricane Humberto shut oil shipping channels and three refineries as it slammed onshore in Texas, before being downgraded to a tropical storm.
"We have a storm working its way to American facilities. We have an economic crisis, so many things are affecting...prices," said Hasan Qabazard, director of OPEC's research division.
The three shut refineries, all in Port Arthur, Texas, were operated by Valero
Though quadruple the levels of 2002, the price of oil when adjusted for inflation is below the $90-per-barrel peaks of the Iranian Revolution in 1979 and the start of the Iran-Iraq War the following year.
Strong fundamentals and the recent price surge has lured more investors into oil markets, their enthusiasm growing thanks to a market structure that encourages favorable returns.
"Modest demand growth combined with no significant supply increases has caused oil inventories to decline sharply, creating backwardation in the oil forward curve, which is a very bullish signal," said Jeffrey Currie of Goldman Sachs.
In a backwardated market, oil for delivery in the near term is more expensive than for later shipment. Investors make money by selling the more costly prompt oil futures contract and buying cheaper crude contracts for later delivery.
The market shifted into backwardation in part because some analysts and consumers believe OPEC will not pump enough oil to satisfy demand for fuel this winter.
To try to soothe consumers, OPEC agreed a small supply increase Tuesday. But analysts said OPEC's deal to raise output by 500,000 barrels per day from Nov. 1 was not enough to reverse a rally that has lifted prices by 31 percent this year.
Market participants were also taking stock of crude inventories in top consumer the United States that fell 7.1 million barrels last week to the lowest level in eight months.