Oil hits record $97 as U.S. predicts winter crunch

NEW YORK (Reuters) - Oil jumped more than $3 to a record high over $97 per barrel Tuesday as the U.S. government predicted robust demand and tight output from OPEC would lead to a supply crunch in consumer nations this winter.

A oil field worker works at a pump jack in PetroChina's Daqing oil field in China's northeastern Heilongjiang province, November 5, 2007. REUTERS/Stringer

The falling U.S. dollar added to oil’s gains and pushed up other commodities denominated in the currency, including gold, silver and grains.

U.S. crude settled up $2.72 at $96.70 a barrel after it hit an all-time high of $97.10. London Brent crude rose $2.77 to $93.26.

The U.S. Energy Information Administration said Tuesday that oil supplies in industrialized nations would drop some 20 million barrels below the five-year average by the end of this year amid robust demand and continued caps on output from producer-group OPEC.

“Rising oil consumption and the realization that additional OPEC production may not be sufficient to arrest the inventory decline are keeping markets firm,” the EIA said in its monthly short-term energy outlook.

The EIA, the statistical wing of the Department of Energy, also sharply raised its forecast for U.S. oil prices in 2008 to near $80 a barrel from its prior projection of $73.50.

The Organization of the Petroleum Exporting countries, source of more than a third of the world’s oil, has agreed to raise production by 500,000 bpd from November 1.

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But the group has shrugged off calls for additional oil from the United States and other big global consumers, blaming the rally on speculators and geopolitical tensions, not falling supplies.


Prices have surged from below $70 in mid-August as worries of a winter crunch, the weak U.S. dollar and the credit crisis have drawn investor cash to energy and commodity markets.

The dollar hit a record low against the euro on Tuesday, further driving up commodities.

With oil nearing the $100 mark -- and the all-time inflation-adjusted high of $101.70 struck on April 1980 -- experts say price swings are becoming more volatile.

“We seem to be seeing a tug of war between people taking profits and those coming in to buy into dips, and they are effectively saying we can go past $100,” said Mike Wittner at Societe Generale.

Oil had tumbled $2 on Monday on concerns slowing economic growth in the United States could hurt crude demand in the world’s biggest consumer.

Crude oil stocks in the United States, the world’s biggest energy consumer, were forecast to have fallen 900,000 barrels last week due to disruptions to Mexican exports, a preliminary Reuters poll found.

Crude stocks in the United States are already running about 7.5 percent below a year ago after a series of declines.

Further price support Tuesday came after ConocoPhillips COP.N said it may have to shut down five oil platforms in the Norwegian section of the North Sea on bad weather.