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. Last Updated: 07/27/2016

Oil Hits New Nine-Year Highs




Oil prices blasted to new nine-year highs Friday as traders took the chance to buy up early winter supplies in the fear they will soon get still more expensive.


International benchmark Brent for January shot up by 85 cents in London to set a new high at $25.21 a barrel mid-afternoon, topping new post-Gulf crisis highs set Wednesday and giving an instant riposte to a 50 cents Thursday fall.


Earlier, oil had risen as high as $26.80 a barrel on the New York Mercantile Exchange, the costliest since January 1991 when the war drove it to $32. Profit-taking ultimately pushed it back to $25.80 by the end of the day, slightly lower than Wednesday's close of $26.60.


A price of $30 a barrel, unthinkable when it bottomed out at $11.26 in February, is possible by year's end.


Oil producers seeking signs of an early winter to prolong the runaway price rally needed to look no further than the doorstep of the OPEC headquarters in the Austrian capital.


Weather forecasters said Vienna could expect 5 centimeters to 7 centimeters of snow as they predict the Northern Hemisphere this year will produce a normal or colder-than-normal winter.


Heavy snow was also reported in Bavaria, southern Germany, Europe's biggest consumer of heating oil, while forecasts across Europe are for temperatures as much as 6 degrees Celsius below normal over the next five days.


Europe's cold snap is deepening fears of a supply crunch this winter as tough producer supply curbs cut into stocks of spare oil in industrialized countries.


However, despite similarly plunging temperatures in Russia, oil companies will be rubbing their hands, not to get warm, but in glee at the continued rise in their fortunes.


Russian majors, already facing lower costs since last year's ruble devaluation, have watched oil rise from about $10 a barrel at the beginning of the year and are set to have their most profitable year.


If oil's rise doesn't end soon, experts say, the United States' overall inflation rate will begin to accelerate. That could, perhaps, cause the U.S. Federal Reserve board to impose another interest rate increase, its fourth in recent months. A rate hike, while it would curb inflation, could also slow down U.S. economic growth, jeopardizing corporate profits, jobs and the stock market.


This could, in turn, reverberate around the world, where regions such as Asia are still recovering from recessions.


Still, the unease is far from panic. No one is forecasting oil will even approach the all-time high of $41.15 a barrel of Aug. 12, 1990, just after Iraq's invasion of Kuwait.


And economists note that, in current dollars, prices aren't really the equivalent of prices from the Gulf War of nine years ago or the oil crunch and recession of two decades ago.


"There's no cause for alarm," said Leo Drollas, chief economist for the Center for Global Energy Studies, a London research center. "But there's cause for concern. There's a long catalog of repercussions from this.


"We've been blessed by low inflation, which has helped the Asian recovery and kept the U.S. economy booming. And inflation is edging up, for other reasons as well. This is just giving it a kick when it's not needed," he said.


With crude-oil inventories near a two-year low and still falling and the arrival of colder weather that increases demand, analysts say there's no end in sight to oil's rise.