Fearful traders drive up price of crude
By LILY NGUYEN, The Globe and Mail
Wednesday, September 12, 2001
CALGARY -- Oil prices surged by as much as $4 (U.S.) yesterday on fears that the terrorist attacks in the United States could disrupt supplies worldwide and speculation that the tragic events would be linked to the oil-exporting Middle East.
Traders pushed the price of benchmark Brent futures to as much as $31.05 (U.S.) a barrel on the London International Petroleum Exchange - its highest price since last December - before easing off. Brent crude closed at $29.06, up $1.61.
Analysts said traders were simply reacting to fear and uncertainty in the marketplace, rather than any actual cutoff of oil output, as everyone struggled to digest the ramifications of the attacks.
“It's just a panic premium in there. Uncertainty always makes for volatility,” said Judith Dwarkin, vice-president for global energy at the Canadian Energy Research Institute in Calgary. “There's been no change in the physical supply of oil.”
Carol Crowfoot, a senior energy economist with Gilbert Laustsen Jung Associates Ltd. in Calgary, said that with the halt of trading in the United States, those anxious to secure oil supplies are willing to pay more for it.
“If people can find someone to do a deal to buy crude oil [from], they are buying it and they are willing to pay a higher price,” she said.
The Organization of Petroleum Exporting Countries stepped in yesterday with reassurances that worldwide oil supplies will be maintained.
“OPEC member countries are committed to their promises to guarantee sufficient oil supplies and their policy of strengthening market stability,” said Ali Rodriguez, the organization's general secretary.
He added that OPEC has substantial spare capacity and is prepared to use it to stabilize prices.
A spokesman for the U.S. Energy Department said there are no plans to release supplies from that nation's strategic petroleum reserve, which holds 542 million barrels of crude.
Analysts were divided about the longer-term outlook for oil prices, especially because so much is still not known about the attacks, including those responsible and what retaliatory measures may be taken.
Ms. Dwarkin said the attacks could drive an already weakened U.S. economy to its knees, curbing demand and eventually causing a drop in oil prices.
The attacks “struck at the financial heart and the centre of government. There's been a loss of knowledge and skill,” she said. “In the longer term, it doesn't bode well for oil demand.”
She added, “There's been no change on the demand side. Any change will be on the supply side.”
But Ms. Crowfoot predicted that prices probably will go higher, especially if the attacks are traced to a group connected to the Middle East.
“Whatever retaliation occurs, if that jeopardizes Middle East [supply] anywhere, then certainly I would expect prices to go higher,” she said.
With files from Reuters and Dow Jones