By Steven Mufson
Washington Post Staff Writer
Tuesday, April 18, 2006
Oil prices closed yesterday at a record high of more than $70 a barrel, rising more than $1 on concerns about pipeline attacks in Nigeria and heightened diplomatic tensions between the West and Iran over Tehran's nuclear program.
An announcement by Chinese President Hu Jintao that his country's economy grew in the first quarter at a rate of 10.2 percent also contributed to the price increase as traders worried that the rapid economic growth would fuel greater Chinese demand for petroleum imports.
The oil prices appeared to weigh on investor sentiments in the United States. The stock market slumped as investors worried about the prospect of higher gasoline prices. Meanwhile, the price of gold, which tends to rise with inflation and world conflict, jumped by 3.1 percent, the biggest one-day gain since the September 2001 terrorist attacks.
Adjusted for inflation, oil prices are still below their historical highs.
"The story until now has been the economy's resilience as prices went through $50 and then through $60 a barrel, but at some point it all catches up," said Daniel Yergin, chairman of Cambridge Energy Research Associates, a firm that advises businesses and the government about energy markets. "If a price of $70 persists, it is likely to be depressive for the economy, and the fears are likely to infect investors."
Light, sweet crude for May delivery settled at $70.40 a barrel on the New York Mercantile Exchange, an increase of $1.08 from Thursday's close and 59 cents above the previous closing record, set in August in the immediate aftermath of Hurricane Katrina. The exchange was closed Friday.
"Where the top is is pretty hard to say at this point," New York-based oil broker Tom Bentz told the Associated Press.
Concerns about tight supplies also rocked the gasoline market, with Nymex gasoline futures jumping 6.18 cents to settle at $2.1697 a gallon -- the highest level since late September. At the retail level, the nationwide average for regular unleaded yesterday reached $2.78 per gallon, or 55 cents higher than last year, according to the Energy Information Administration.
As oil and gasoline prices rose, so did fears about inflation, which were compounded by China's breakneck growth figures. Prices also rose for copper, a key inflation indicator.
The main ingredient in the oil market turmoil appeared to be the tensions between the West and Iran. The United States and its European allies want Iran to open up all of its nuclear facilities to international inspection, but Iran has not complied. Tehran says its nuclear program is aimed at peaceful nuclear power, but the West fears it is developing nuclear weapons.
Iran exports nearly 2 million barrels of oil a day, more than the world's spare capacity at this point. While U.S. companies are prohibited from working in Iran, firms from Europe and Asia have continued to explore and produce there.
Yesterday, Iran said it would give the Palestinian Authority $50 million, defying U.S. efforts to apply economic pressure to get the Hamas-led government to deal with Israel.
"Over the last few days, there's a widespread sense that both sides have ratcheted up to a new level of tension," said Yergin, author of a prize-winning book on the history of the oil industry. "No one knows what to expect, so every increase in tension registers in the oil market."
It also registers in Tehran's piggy bank. Every $5-a-barrel increase in the price of oil means an additional $100 million a week in revenue for Iran, Yergin estimated.
The surging oil prices helped push U.S. markets lower. The Dow Jones industrial average fell 63.87, or 0.6 percent, to close at 11,073.78, while the Standard & Poor's 500-stock index dropped 3.79, or 0.3 percent, to 1285.33, and the Nasdaq composite index sank 14.95, or 0.6 percent, to 2311.16.
The price of gold surged to $618.80 an ounce in New York after reaching the highest level since December 1980, during the Iran-Iraq war.