Oil prices break record

Oil prices have today reached $78.71 a barrel for WTI, sweet crude, beating the previous record of $78.40.

Oil prices had already been rising due to particular concerns about continued instability in Nigeria, coupled with disrupted supply in North Sea oil fields, as well as a myriad of local production problems around the world.

However, today’s price rise came as the US reported a much larger fall in inventories than anticipated. While a drop of 700,000 barrels had been forecast by analysts, the actual shortfall was 6.5 million barrels.

Traders are increasingly concerned about the ability for oil supplies to meet high demand, especially in terms of spare capacity, despite OPEC last month announcing discussions on increased production.

A particular concern is the opaque accountability of oil stocks, with many OPEC members refusing to allow their field capacity to be independently audited.

This is not least because OPEC’s own estimates are founded on self-interest, with larger reported reserves allowing them to produce more oil, and take advantage of higher prices, resulting in more income for members.

Additional to concerns about crude oil production is the ability to supply oil products, with a global need for refineries previously reported. Even oil-rich countries such as Nigeria and Iran have already had to invoke oil rationing, and even US refineries have been hit by a series of issues, such as fire, flooding, and hurricanes.

The previous $78.40 high occurred in July 2006, during the Israel-Lebanon conflict last year, but further issues relating to Iraq, Iran, and South America, could help yet push record prices into even higher territory.