By Javier Blas
FT.com
May 9, 2008
Crude oil and corn prices surged to record highs on Friday as the world’s hunger for fuels continued to convulse the energy and agriculture markets.
The rise in oil prices to a record of $126.2 a barrel – double the level of a year ago – was the culmination of a stunning week in which prices jumped by $10, stoking fears of higher inflation in spite of lower economic growth.
A year that began with people asking whether oil prices would finally reach $100 a barrel is seeing some traders already betting on when it will hit $200.
The increase in energy costs is putting fresh pressure on the Organisation of Petroleum Exporting Countries, the oil producers’ cartel, to increase levels of production.
On Thursday, Abdalla El-Badri, Opec’s secretary-general, said the market did not need more oil. “There is clearly no shortage of oil,” he said.
However, these comments contributed to the sharp rise in prices and on Friday, for the first time in months, some ministers in the group showed signs of nervousness, suggesting that they would be in favour of meeting ahead of the September conference to review the market.
The jump in oil prices is also driving up the use of agricultural crops such as corn and soyabean for biofuel, exacerbating food inflation and aggravating shortages across the world.
The US Department of Agriculture revealed on Friday that the US biofuel industry would consume one third of the country’s corn crop in the 2008-09 season – or 4bn bushels – up from about 22 per cent a year earlier – or 3bn bushels.
Gavin Maguire, an agriculture analyst at Iowa Grains in Chicago, said: “Record high oil prices are pushing demand for alternative fuels. And in the US, alternative fuel means corn-based ethanol.”
Corn prices rose to a record record of $6.27 a bushel, up 75 per cent in the past year. Some analysts warned that corn could hit $7 a bushel this year, raising the cost of meat and dairy products because the grain is used as agricultural feed.
Corn stocks in the US were forecast to drop to their lowest level in 13 years. “The situation is dangerously tight,” Mr Maguire added.
Additional reporting by Carola Hoyos and Chris Flood in London
The Financial Times Limited 2008