Crude futures plowed to a new high near $49 a barrel Thursday as the threat of sabotage to Iraqi oil infrastructure loomed larger than promises from Baghdad to boost exports in coming days.
Those fears were amplified late in the day after Shiite militants broke into the headquarters of Iraq’s South Oil Co. and set the company’s warehouses and offices on fire, witnesses said.
Underpinning the market’s nervousness is the belief that the Organization of Petroleum Exporting Countries — Saudi Arabia in particular — does not have the ability to swiftly raise production high enough in the event of a major global supply disruption.
U.S. light crude for September delivery rose $1.43 to close at $48.70 on the New York Mercantile Exchange — the highest Nymex settlement on record. When adjusted for inflation, oil is roughly $8 less per barrel than it was leading up to the first Gulf War.
There were also technical factors behind Thursday’s rally. Traders said those who had waited on the sidelines in recent weeks, hoping that prices would fall, came into the market as buyers on Thursday in order to secure next month’s supply. The September contract expires Friday.
After regular trading had ended on Nymex, witnesses in Basra said insurgents loyal to radical cleric Muqtada al-Sadr broke into the Iraqi oil company compound and burned its warehouses. The fire then spread to the company’s offices.
Earlier in the day, Iraqi oil minister Thamer al-Ghadhban said the country was prepared to resume pumping its capacity of 1.7 million barrels per day, up from current levels of about 1 million a day. “We will resume full south oil exports shortly,” Ghadhban said at a news conference in Baghdad.
Whether the attack in Basra would alter that plan was not immediately clear.
Moreover, the impact of Ghadhban’s announcement was minimized by heightened tensions in southern Iraq. Al-Sadr rejected a government ultimatum to immediately disarm his militia and pull them out of a Muslim shrine in Najaf without conditions. And as hopes of a quick cease-fire waned, fears of oil-pipeline sabotage rose.
“The market has taken the disruption in Iraqi oil supplies very seriously,” said James Steel, director of commodities and oil research at Refco, a New York-based brokerage.
Iraqi output and exports have been hampered recently by fighting in the southern part of the country, putting upward pressure on global oil prices at a time of strong demand in China and the United States and supply concerns in Russia, Venezuela and other petroleum-producing nations.
“The market has been able to accommodate a supply disruption from one source,” Steel said. “But what makes oil prices jittery is when you have the possibility of disruptions from several sources at once.”
The price of crude is 59 percent higher than a year ago and has spiked by almost 31 percent since the end of June.
On London’s International Petroleum Exchange, Brent crude futures for October delivery soared $1.30 to $44.33 per barrel.
“Fifty dollars isn’t so unreasonable anymore,” said Victor Shum, oil analyst at Texas-based energy consultants Pervin & Gertz in Singapore.
Analysts and traders also remained concerned about developments and a possible cut in supply from Russia and Venezuela, both major crude exporters.
Russian oil giant Yukos continues to teeter on the brink of bankruptcy as the government tries to collect $3.4 billion in back taxes — a move that threatens to weaken Yukos’ daily productivity of 1.7 million barrels.
In Venezuela, the world’s fifth-largest exporter, opposition leaders refused to participate in an audit of last Sunday’s referendum to oust President Hugo Chavez — which officials say he won convincingly.