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Oil nears $100 a barrel on supply disruptions
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The rise in oil prices came amid a broad rally in commodities, as the dollar slipped and risk appetite returned to the market after strong eurozone industrial production numbers and encouraging results from the latest Portuguese bond auction.
Brent crude prices were boosted by a brief production outage at two Norwegian North Sea oilfields on Tuesday night, in addition to the continuing disruption at the Prudhoe Bay field in Alaska, North America’s largest.
Analysts have stepped up calls for oil to trade above $100 for the first time since 2008 – when prices shot to a record $147 a barrel – on the back of strong industrial demand, a cold snap in Europe and the US, and a jump in coal prices.
While Brent is flirting with the $100 mark, West Texas Intermediate, the US benchmark, is some way from the landmark. On Wednesday, Nymex February WTI was trading at $90.94 a barrel – a $6.46 discount to Brent.
The widening gap between the two benchmarks is due to a build-up of inventories at Cushing, Oklahoma, the delivery point for the WTI contract. As Cushing has few outlets to evacuate surplus oil, a glut tends to depress the price of WTI relative to other US and international crude oil benchmarks.
Hussein Allidina, head of commodities research at Morgan Stanley in New York, described WTI as “the misleading benchmark”, saying: “We prefer to express our bullish view on crude through Brent”.
In other commodity markets on Wednesday, industrial and energy commodities were higher on the back of the higher risk appetite in financial markets.
Copper for delivery in three months gained 0.8 per cent to $9,595 a tonne on the London Metal Exchange, approaching the all-time peak set last week, while palladium – used in catalytic converters in cars – hit a fresh nine-year high of $804.10 a troy ounce, up 2.3 per cent on the day.
Agricultural commodity markets were fixated on the US Department of Agriculture report due to be released later in the day. By mid-morning in London, CBOT March wheat was 1.45 per cent stronger at $7.705 a bushel, CBOT March corn gained 0.6 per cent to $6.1075 a bushel, and CBOT January soyabeans were 0.8 per cent higher at $13.615 a bushel.
Analysts and traders have warned that the global food balance sheet remains finely balanced, with any surprises likely to send prices shooting higher. The UN Food and Agriculture Organisation’s index of global food prices rose to an all-time peak in December.
