LONDON – Oil prices settleed just below the $50-per-barrel mark in New York Tuesday, retreating from the $50.47 high reached in overnight electronic trade, after a Saudi Arabian oil official said it would raise its production capacity by nearly 5 percent.
Crude for November delivery last traded at $49.88, up 24 cents on the New York Mercantile Exchange (search), after slipping as low as $49.55. The session high was $50.20. Resistance was still seen at $51 and then $53, with support at $49.40.
"We played cat and mouse with $50 here today...prices could not push any higher with the weekly stats still due out on Wednesday," said a NYMEX floor trader.
Analysts said instability in the Middle East, political unrest in Nigeria, Africa's top oil exporter, and damage to U.S. production from the Caribbean's hurricanes were keeping traders on edge about world supplies. Some said the price may not be sustainable and may soon fall.
In response to the increase, Saudi Arabia announced it will raise its oil production capacity from 10.5 million barrels a day to 11 million barrels in order to "stabilize" prices. It is currently producing about 9.5 million barrels a day.
By increasing capacity, Saudi Arabia will be able to raise production when it wants. A Saudi oil ministry official, speaking on condition of anonymity, said that the kingdom would increase production "depending on demand."
The capacity increase by the world's largest oil exporter will go into effect within weeks, using new fields where production has just begun, Oil Minister Ali Naimi said.
"The fields of Abu Safa and al-Qatif, which have just started production, will be used to increase the kingdom's production capacity in the coming few weeks to 11 million barrels per day," the minister said in a statement.
"In light of the recent developments in the oil market and the increase in prices that exceeded $50 ... Saudi Arabia is closely monitoring the various developments in the international oil market and is working on stabilizing that," he said.
Naimi added that the increase was meant to control "prices so that they will not harm international economic growth."
Oil prices rose despite assurances from Purnomo Yusgiantoro, president of the Organization of Petroleum Exporting Countries (search), who said producers are trying to bring prices down after an announcement two weeks ago that the cartel would boost its production target by 1 million barrels a day failed to move the price lower.
"The latest spark was the reported increase in fighting in Nigeria," said ANZ Bank energy analyst Daniel Hynes from Melbourne, Australia. But the damage from Hurricane Ivan "certainly paved the way for the latest surge."
Rebels in Nigeria continue to battle for control of the vast southern oil fields in the world's seventh-largest exporter.
The Niger Delta People's Volunteer Force (search) rebel group said Tuesday the insurgents will begin a full-scale armed struggle to gain control of the regions oil riches from Nigeria's government beginning Oct. 1.
That rattled markets, even though Nigeria's military dismissed the threat.
The United States has lost more than 11 million barrels of oil production in the past two weeks, according to U.S. government data, with Gulf of Mexico output still down nearly 500,000 barrels a day following the devastation brought by Ivan.
The price of oil is up roughly 75 percent from a year ago and some analysts predict the latest surge — which is already hurting airlines and other big consumers — could lead hurt the global economy.
Although oil is at an all-time high, prices are not at record levels when inflation is taken into account. Adjusting for inflation, today's prices are still more than $30 below the level reached in 1981 after the Iranian revolution.
That hasn't eased the fears gripping the market, however.
"There is a lot of fundamental panic buying by the end users," said oil strategist Ng Weng Hoong at Energyasia.com in Singapore, adding that he believed the price would go still higher.
With global oil demand at roughly 82 million barrels a day, analysts say the amount of excess oil production available is only about 1 percent, leaving the industry a slim margin for error in the event of a prolonged supply interruption.
On Monday, the Minerals Management Service (search) reported that daily oil production in the Gulf of Mexico is 29 percent below normal at about 1.2 million barrels per day. Eleven million barrels of oil, or 1.9 percent of annual production in the Gulf of Mexico, have been lost since Sept. 13, when offshore producers began evacuating crews and shutting down production ahead of Ivan's arrival.
In Iraq, fighting between U.S.-led forces and rebels has shown no sign of letting up ahead of the country's elections in January.
In London, Jeremy Batstone, an analyst with Charles Stanley, said, "The cost of oil needs to rise much further before it has a major impact on the global economy,"
Jason Kenny, and oil and gas analyst with ING Financial Markets in Scotland, said: "There is a lot of supply concern in the market, I think we'll have a lot of volatility over the next few weeks, until we get some clarity about U.S. oil inventories, OPEC output movements, geopolitics."
Kenny said oil prices could conceivably rise to $60 in the near future, but he said they were more likely to fall, barring another major terrorist attack. "I personally think the $50 level is unsustainable," he said, because some oil importing nations can't afford that price.