Oil Prices Hit $140, Then Back Down

July 15, 2008

Today, the price of oil reached $140 per barrel during afternoon trading, yet again breaking a recently-set record. However, after that peak, oil prices decreased again, experiencing a low of $132.84 per barrel. By the end of trading, oil reached a prices of $134.61 a barrel at the New York Mercantile Exchange.

Observers say that the decrease in prices was due to a promise from Saudi Arabia to increase production, a promise issued over the course of this weekend. However, crude options are set to expire tomorrow. Markets have typically been especially unstable right before the expiration of these preexisting agreements, and other observers say that perhaps this instability was the cause of today’s surprising fluctuations in the price of oil. They say that Saudi Arabia’s promise is not enough to make any kind of serious dent in the unprecedented prices.

The promise from Saudi Arabia amounted to an agreement, conveyed by the world’s leading oil exporter to UN leader Ban Ki-moon, to increase the production of oil by 200,000 barrels per day between now and July. This promise comes on the heels of another increase last month, during which Saudi Arabia augmented the production by 300,000 barrels a day.

Analysts like Kevin Norrish of Barclays Capital don’t think these increases in production are enough. “Saudi Arabia’s proposed output addition will only go some way in offsetting the significant output losses in other OPEC nations like Nigeria,” wrote Norrish during the course of his market investigations.

James Cordier, president of the Liberty Trading Group of Tampa, FL, said that, in order to make a real impact on the price of oil, Saudi Arabia would have to “increase by north of 1 million barrels per day.”

Meanwhile, at gas pumps across America, oil sold for an average of $4.08 per gallon, yet another dismal record.

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