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Oil jumps above $140 on OPEC, Libya comments

(Agencies)
Updated: 2008-06-27 09:09

NEW YORK - Oil futures shot above $140 Thursday after OPEC's president said crude prices could rise well above $150 a barrel this year and Libya said it may cut oil production. The advance raised the likelihood that gasoline prices would also extend their march higher, and that prices of goods and services throughout the economy would also keep rising.

Alex Keros, a General Motors senior engineer, demonstrates how to fill up a General Motors Chevrolet Equinox fuel cell-electric SUV with hydrogen Thursday, June 26, 2008, at California's first hydrogen refueling station during a dedication ceremony in Los Angeles. Oil futures shot above $140 Thursday after OPEC's president said crude prices could rise well above $150 a barrel this year and Libya said it may cut oil production. [Agencies]

Light, sweet crude crossed the $140 level minutes before the New York Mercantile Exchange closed Thursday, then retreated slightly to settle up $5.09 at a record $139.64. In after-hours electronic trading, prices rose as high as a record $140.39.

Oil's latest milestone came as Chakib Khelil, president of the Organization of the Petroleum Exporting Countries, said he believes oil prices could rise to between $150 and $170 a barrel this summer. Khelil also said prices will decline later in the year, and aren't likely to reach $200 a barrel.

Related readings:  OPEC head says no shortage in oil market  'Economic meltdown' if crude oil hits $200  Is the oil bubble ready to burst?  Saudi king says to increase oil output

Khelil joined a long list of forecasters who have made bold oil price predictions this year. Each new forecast -- such as Goldman Sachs' recent prediction that prices could rise as high as $200 -- causes a jump in prices as speculative buyers are drawn into the market.

Meanwhile, the head of Libya's national oil company said the country may cut crude production because the oil market is well supplied, according to news reports.

"Shokri Ghanem, the nation's top oil official, declined to say when a decision would be made on whether to lower production, or give any indication of the size of the cut under consideration," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.

Oil's move above $140 a barrel was the first for what's known as a front-month crude contract, or the contract with the earliest expiration date. But it was not the August contract's first foray above $140 -- August crude futures rose as high as $140.42 a barrel while July futures were still traded as the front-month crude contract. Many other later contracts have also traded above $140.

The previous trading record for a front-month contract was $139.89, set by the July contract on June 16.

The rising price of oil -- and the accompanying surge in gasoline prices to a national average above $4 a gallon -- has contributed greatly to the growing uneasiness about the economy across the U.S. Consumers forced to pay more for gas and for food and anything else that needs to be transported have been cutting back their spending on non-essentials, and the fear in many quarters is that they will continue to curb their outlays.

Oil prices have more than doubled over the past year on concerns about rising demand and supply disruptions in the Middle East and Nigeria. The dollar's protracted decline against the euro has also been a major factor behind oil's rise, as many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Analysts have also attributed oil's rapid climb to speculative buying, with traders jumping into the market purely on the expectation that futures will continue to rise.

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