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. Last Updated: 07/27/2016

Oil Prices Surge to 10-Year High

The government and oil exporters had more good news on the oil front Tuesday as world oil prices raced to 10-year highs.

The rise was driven by worries about low U.S. petroleum inventories and frank talk by top exporter Venezuela about OPEC?s thirst for petrodollars. Brent crude oil futures on the International Petroleum Exchange pushed up $1.27, 4 percent higher, to $32.75 per barrel. This is above a previous peak of $31.95 hit March 7, at that time the highest level since 1990.

Russian benchmark Urals blend trades at a discount from 50 cents to $3 lower than international benchmark Brent. Urals blend had fallen under $25 per barrel last month but was back over $27 Tuesday. This year?s budget is based on a price of $18 per barrel, but exporters and the government have enjoyed higher revenues while world prices have stayed at about three times the levels they were at the beginning of 1999.

Brent has risen by a fifth since Aug. 1 amid worries about low oil inventories in the United States, the world?s largest energy market. Another spur for the market has been tough talk by OPEC?s Venezuela about the need for members of the Organization of the Petroleum Exporting Countries to earn enough money from oil at current prices to develop their economies. The grouping pumps most internationally traded oil.

However, a report by the U.S. Energy Information Administration on Tuesday predicted that the world price would fall to $25 per barrel by the end of summer and will gradually fall in 2001 to an average of about $22 per barrel for the year. This would be $5 lower than the annual average for 2000, the report said. The EIA is a division of the U.S. Energy Department. Daily crude supplies will overtake demand this year, said the report, which is on the EIA?s web site at www.eia.doe.gov.

Exports from the former Soviet Union had already risen as production recovered and should rise more after the Caspian Pipeline Consortium enables oil from Kazakhstan to reach world markets next year, the report added.

In the meantime, volatility rules world fuel markets. Steep gains on gas oil, a category of petroleum that includes heating oil and diesel, have also boosted crude. Gas oil hit post-Gulf War highs on the IPE last week.

Statistics released by the American Petroleum Institute indicated heavy reductions in stocks in the last few weeks have brought reserves to their lowest levels in 24 years, underpinning much of the recent price rally.

The latest batch of weekly API numbers for U.S. crude and refined products will be released after the close of dealings Tuesday. The two-week bull market has so far refused to be tamed, shrugging off news Monday that U.S. Energy Secretary Bill Richardson, in a meeting with oil analysts last week, had again raised the topic of opening the Strategic Petroleum Reserve to cool off prices. Richardson discussed the option of release of oil from the reserve, but did not suggest a release was imminent, said one analyst who attended the meeting. (Reuters, MT)