By Steven Mufson
Washington Post Staff Writer
Wednesday, February 20, 2008
The price of crude oil closed over $100 for the first time yesterday on the New York Mercantile Exchange, rattling stock markets and marking a milestone in the relentless rise in petroleum prices over the past five years.
The high oil price, which rivals the inflation-adjusted peak set during the early days of the Iran-Iraq war nearly three decades ago, has drained cash from the pockets of consumers just when the slowing economy could use a spending boost. And it reinforced fears that oil prices, which have long fluctuated with political and economic cycles, may never again drop to past levels.
The price hit a new high of $100.10 a barrel before settling at $100.01 a barrel, up $4.51, when the market closed at 2:30 p.m. The price in late electronic trading dropped only slightly, to $99.99 a barrel.
The oil price increase erased a 157-point rally in the Dow Jones industrial average, hurting the shares of retailers and technology firms as investors worried that consumer spending could be diverted to gasoline pumps from stores.
The rapid 4.7 percent price increase yesterday was spurred in part by concern about crude oil supplies. The president of the Organization of the Petroleum Exporting Countries, Chakib Khelil, said last week that there was no need to boost production to dampen high prices. Instead, he and other oil ministers have suggested that OPEC might even cut output at its March 5 meeting to make sure that an economic slowdown in the United States doesn't lower prices.
In addition, traders fretted that political violence in Nigeria and Iraq could disrupt exports from those nations.
But with U.S. stocks of crude oil and refined products comfortably within historical ranges, and with signs that U.S. gasoline consumption has stopped growing, analysts said yesterday's jump in prices was caused by financial factors as much as supply.
As the price on the New York Mercantile Exchange, or Nymex, neared $100, financial institutions scrambled to buy oil supplies to cover options they had sold. Those options gave other investors or refiners the right to buy crude oil at $100 a barrel.
"The bank has to buy to cover itself. That only accentuates prices going higher," said Adam Robinson, an oil analyst at Lehman Brothers. He added that patterns in the prices and volumes of options suggested that oil producers who might normally sell at these high prices were waiting in hope the prices would go even higher.
"Producers are sitting on the sidelines," Robinson said.
An explosion and fire at a small Texas refinery on Monday had no effect on crude prices, but it helped drive up gasoline prices on futures markets. The price of gasoline for March delivery jumped 10.93 cents a gallon, to $2.60 a gallon.
The spike in oil prices boosted the share prices for big oil companies such as Exxon Mobil, which has a lot of oil production of its own. But it hurt airlines, which need to buy jet fuel, and refiners, which need to buy crude oil.
"We're not pleased about $100 a barrel oil," said Bill Day, a spokesman for Valero Energy, the nation's biggest independent refiner. Valero has no crude oil production of its own and needs to buy crude for its refineries, which have 3.1 million barrels a day of capacity. "We've seen oil prices increase dramatically since last spring," Day said. "Back then, oil was $65 a barrel. Today it's $100, and gasoline is less expensive. What that means is that . . . refiners get squeezed."
Yesterday was the third time the price of crude oil had poked through the $100 barrier, but it was the biggest move over that line. On Jan. 2, there was one trade for 1,000 barrels of crude oil, the standard-size lot traded on the Nymex. The trade was dismissed by many as a novelty or prank. On Jan. 3, however, 4,000 lots were traded above $100 a barrel, though the price eventually ended up below that mark.
There were 400 separate trades yesterday above $100 a barrel, according to Kyle Decker, spokesman for Nymex. He did not say how many lots were involved.
Kateri Callahan, president of the Alliance to Save Energy, said the new price milestone was "another sign that energy prices are going to continue to be a big factor in people's lives." She said that "while consumers can't control the prices they pay for energy, they can certainly control their monthly bills by using less."