Oil Above $50 US

The price of oil closed above $50 US a barrel for the first time Friday as supply concerns continued to grip world markets.

On the New York Mercantile Exchange, the November futures contract for light sweet crude gained 48 cents to finish at $50.12 US per barrel – the contract's highest close in 21 years on the exchange.


The record close for oil came even as a truce between Nigerian government troops and rebel militia held for a second day in the country's oil-producing delta region. The rebels had previously told oil companies to shut down their production unless they agreed to hold talks on autonomy for the region.

But even as oil futures hit a record close Friday, one economist forecast that prices will lose ground steadily over the next two years.

Increased oil production will boost supplies and help bring crude prices back down to a range of $28 US to $33 US a barrel by 2006, BMO Financial Group assistant chief economist Earl Sweet said Friday.

Steep increases in global production, led by the former Soviet Union, Africa and Organization of Petroleum Exporting Countries, have pushed up world supplies by 4.3 per cent – a percentage point above growth in demand, Sweet said.

Sweet believes that current high prices are due to a number of supply side risks concentrated over a short period of time, combined with OPEC's low excess capacity to deal with supply shocks.

"All of these risks have made the market very nervous about supply adequacy, adding a very large premium to oil prices," he said.

Sweet added that rising supplies will lead oil prices down to the $33 US to $38 US range in 2005, before falling further in 2006.