Threat of a new hurricane pushes oil prices up

08-Sep-08

New York's main contract, light sweet crude for delivery in October spiked by over two dollars to US$108.6 a barrel. Brent North Sea crude for October rose to US$106.6. Oil prices have climbed up on concerns that Hurricane Ike is likely to threaten production facilities in the oil-rich US Gulf Coast. The hurricane has hit the eastern coast of Cuba yesterday, becoming the second major storm to hit the island in about a week. Earlier, Ike left dozens of people dead in a rampage across Haiti. Markets also continue to watch for the outcome of OPEC's policy meeting in Vienna, where the subject of falling oil prices is to be discussed, and a possible output cut is to be considered to help keep crude above the 100 dollar mark. The question facing OPEC is when, not if, to cut its oil production target as crude prices slide in the face of weakening global economic growth. An informal cut will be achieved by members, mainly Saudi Arabia, agreeing to cut their excess production above their OPEC quota. This will reduce oil avails from the market but not amount to a formal change in policy. Saudi Arabia is estimated to be producing about 700,000 bpd above its quota. Economic conditions which determine demand for oil, have worsened significantly, with many European economies facing recession, the US economy struggling and fears growing about the emerging economies of Asia.