Environmental Graffiti

It is official; oil has traded at $100 a barrel for the first time.

Violence in Nigeria, Algeria and Pakistan, the weak US dollar and the threat of cold weather have all raised prices after the new year break.

There are concerns that the high price of oil will stoke inflation at a time when many central banks are trying to cut interest rates to stimulate growth. The oil-producers’ cartel Opec has also blamed speculators for the high price of crude and said that there is plenty of the fuel in the market to meet demand.

Peter Beutel at Cameron Hanover in Connecticut told the BBC;

“All of the factors that pushed us above $80 are now moving us higher, until we get more supply or demand starts to take a hit, there is no reason we can’t see any number.”

But some analysts played down the relevance of passing the $100 mark. Tim Evans at Citigroup Futures Research in New York, said,

“The entire focus on $100 oil is frivolous, it is not a magic number. It doesn’t suddenly make this a fundamentally strong market.”

President Bush has said he would not be drawing on the US Strategic Petroleum Reserve (SPR) to try to bring down prices. Although there are those who believe that this is only the beginning and oil prices can rise significantly higher. While daily price rises have been blamed on unrest in oil-supplying countries such as Nigeria, an underlying and significant factor has been an increase in demand from China and India.

Central banks such as the Bank of England and the Federal Reserve are worried that rising oil prices will prevent them cutting interest rates. Expensive oil increases inflation, which makes it more difficult to make the rate cuts that the central banks may have to implement to boost growth. An additional issue to the continuing credit crunch already being felt in the market.

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