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Price of Oil Passes the $45 Mark

Supply Disruption Concerns Continue

By Justin Blum
Washington Post Staff Writer
Friday, August 13, 2004; Page E03

The price of crude oil surged again yesterday, reaching more than $45 per barrel because of concerns about disruptions in oil supplies from Iraq and elsewhere.

Traders yesterday were especially concerned about the fighting in Najaf, Iraq, where followers of Shiite cleric Moqtada Sadr reportedly threatened to damage oil pipelines.

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The price U.S. crude for September delivery on the New York Mercantile Exchange closed at $45.50, up 70 cents from Wednesday.

During the past few weeks, prices of crude oil futures have repeatedly hit their highest levels in 21 years of trading on the exchange. Adjusted for inflation, however, prices remain below the peak in 1981.

"This market is the most incredible bull market I've seen in my career," said David Greenberg, president of Sterling Commodities Corp., an oil trader on the exchange for 14 years. "We're in uncharted territory right now. . . . You have so many different fronts where things could go wrong."

Traders said that if supplies are disrupted in Iraq or another oil-producing country, the rest of the world would have a hard time compensating for it because most countries are producing at or near capacity. Further, significant increases in prices could result, they said.

An announcement on Wednesday by the Saudi Arabian government that it could increase production by 1.3 million barrels of oil a day, if necessary, did nothing to allay those fears yesterday.

Prices had been around what traders called the psychological barrier of $45 for some time and once they hit that level yesterday, they continued to rise, traders said.

"The market broke out of its range," said Anthony Grisanti, president of GRZ Energy Inc. "Once it got above $45, it was off to the races."

Grisanti said the fighting in Najaf added "a new thing to the mix" of fears.

He and other traders cited continuing fears about terrorist attacks or other disruption to production in major oil producing countries such as Saudi Arabia or Venezuela, and fears that a continuing dispute between the Russian government and the country's largest oil producer, Yukos Oil Co., will lead to a loss of production.

Analysts said that if crude oil prices continue to rise, consumers likely will see the impact at the gas pump in coming weeks. But for now, prices are moderating.

A survey of gasoline prices nationally by a contractor for the AAA auto club showed that prices have declined slightly over the past month to $1.861 yesterday for a gallon of regular.

But as prices of oil have gone up in recent weeks, analysts said, there have been strong supplies of gasoline. The result has been that refineries have not been able to sell gas for the higher prices that it previously commanded, meaning the retail price has held steady or decreased.

At the same time, the increasing prices of crude oil have caused the price of heating oil and diesel fuel to increase. Analysts said that there was strong demand for those products and a tight supply.

In explaining the increase in crude oil prices, traders also cited statistics released this week showing that crude oil inventories had decreased more than usual for this time of year. Still, the U.S. crude oil stock of about 294 million barrels was higher than at this time last year, according to the U.S. Energy Information Administration.

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