Oil price hits $120 a barrel

06/05/2008| IslamWeb

The price of crude oil has surged past $120 a barrel.

 

Supply concerns from Opec members Nigeria and Iran as well as a weaker dollar pushed US crude prices up by $4 to $120.36 before closing at $119.97 on Monday.

 

Threats to pipelines in Iraq are also thought to have raised the commodity's value.

  

"People are piling back up on crude oil due to the weakness of the dollar and production issues in Nigeria," Phil Flynn, an analyst at Alaron Trading in Chicago, told Reuters.

 

"But it also looks like momentum play after Friday's positive reaction to the unemployment report."

 

 US government data released on Friday showed US payrolls fell by 20,000 jobs in March, a quarter of the losses expected.

 

This development helped counter concerns that the weaker US economy could drag down oil demand.

 

 And a Monday report from the Institute for Supply Management showed the US service sector grew unexpectedly in April.

 

The cost of oil

The dollar fell broadly on Monday, however, as foreign exchange investors decided the world's biggest economy was still struggling.

Further support for oil came from Iran's announcement on Monday that it would not consider any incentives offered by world powers that would constrain its right to nuclear technology.

 

The tensions add concerns that Iran's oil supply will be tightened, increasing the price traders are willing to pay.

In Nigeria, Royal Dutch Shell was forced to close additional production when fighters attacked a flowstation in the oil-rich Niger Delta.

Skirmishes between Kurdish and Turkish fighters in northern Iraq on Friday and Saturday also added to speculation of reduced oil supply.

 

 Opec nations have refused to be persuaded by consumer nations to increase production, blaming speculators for swelling prices.

 

 'Perfect storm'

Fadel Gheit, a senior energy analyst at Oppenheimer and Company, told Al Jazeera that it was the "perfect storm".

                     

"Everything that could push oil prices higher has taken place in the last 12 months, and more so in the last six months.

 

"Excessive speculation, increased demand, fear of potential supply disruption and lack of access to resources."

 

Gheit said that it was surprising that the rising price had not led to a greater slowdown in the global economy.

 

 He said that that was because the dollar price had taken the brunt of the decline because if traders believe the dollar price will decrease oil prices are pushed up.

 

"This is a commodity that is driven basically by speculation.

 

"As long as governments let this continue, I think oil prices could go much higher."

 

 

PHOTO CAPTION:

 

 Crude oil price hits $120

 

Al-Jazeera