September 10, 2008


Oil prices rose on Monday on fears that Hurricane Ike would disrupt oil production in the Gulf of Mexico. United States (U.S.) light, sweet crude climbed $1.41 to $107.64, and London Brent crude gained $1.19 to $105.28 in early trading. Prices also rebounded on hopes that the U.S. government's rescue of mortgage firms Freddie Mac and Fannie Mae would prevent a further economic slide. Traders were also awaiting a decision on production from the Organisation of Petroleum Exporting Countries (OPEC). OPEC is expected to hold current production levels at a meeting in Vienna on Tuesday. "I don't believe there is any possibility we will change production levels," said Ecuador's oil minister Galo Chiriboga on Sunday. However, there has been growing speculation that some members such as Venezuela might want to lower output. Saudi Arabia, OPEC's most powerful member, is yet to comment. Oil prices had been falling over the last week. On Friday, the price in New York reached $106.23 a barrel, its lowest level in five months. Some analysts expect prices to continue to rise, with a number of rigs in the Gulf of Mexico under threat from Hurricane Ike. The rigs produce some 25 per cent of U.S. oil output and supply about 15 per cent of its natural gas. On Sunday, Hurricane Ike weakened slightly as it approached Cuba. However, U.S. Federal Emergency Management Agency officials predicted it would gain strength as it entered the Gulf of Mexico. Meanwhile, prices also reacted to the news that the U.S. government would bail-out mortgage lenders Fannie Mae and Freddie Mac. There had been worries that, were the problems affecting the U.S. mortgage market to worsen significantly, U.S. consumers would face an additional financial burden on top of rising of food and energy costs. This would have caused them to tighten their belts, reducing demand for oil from motorists, transport firms and factories. Guardian, p. 23.

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