SAY HELLO TO $100 A BARREL OIL / THE FINANCIAL TIMES ( VERY HIGHLY RECOMMENDED READING )

Note from the editor

Say hello to $100 a barrel oil

Yes, West Texas Intermediate and Brent, the two most-followed benchmarks, have yet to hit the triple-digit level, but the cost of several high quality crude grades in the physical market has already reached the psychological level of $100 a barrel.


WTI and Brent represent only a fraction of the hundreds of different crudes traded globally each day. Petroleum Intelligence Weekly's International Crude Oil Market Handbook - the crude oil traders’ bible - lists almost 200 different crude grades, from Kutubu of Papua New Guinea to Caño Limón of Colombia.


Well, last week some of those exotically named crudes, such as Tapis of Indonesia, Bonny Light of Nigeria and Daqing of China, all traded above $100 a barrel.


Indeed, Tapis hit a weekly high of $104.75 a barrel, according to Bloomberg data. At the same time, some lower quality crudes, such as Maya of Mexico, remain far away from the triple digit level, trading between $80 and $85 a barrel.

Does it matter whether the benchmarks hit $100 a barrel?


Well, everyone loves a round number. Reporters love round numbers because they provide strong, clear headlines; investors love them because they serve as targets, and even traders, some of whom like to collect notable price prints, including the first $100 a barrel order, now seen as a piece of art.


But in terms of the global economy – and the oil companies – it matters little whether the oil prices hits $99.9 or $100 a barrel.


But the triple-digit level can have a psychological impact, helping to push through inflationary pressures as companies which have waited to pass rising prices to consumers decide to take the round number as a cue to increase their retail prices. You see, everybody loves a round number.


As Paul Horsnell, the veteran oil-watcher or Barclays Capital, argues, the critical question is whether oil prices will trade on average above $100 a barrel in 2011. Even in 2008, when WTI prices hit an all-time high of nearly $150 a barrel, average annual prices for the year stood at $99.7 a barrel. The annual average is critical as it represent the cumulative impact of very high prices on the economy.


While the market agrees that $100 a barrel is a question of when rather than if for 2011, many analyst do not expect oil prices to average $100 a barrel this year. Time will tell, but so far there is little indication that Opec is ready to step in to stop oil prices moving above the triple digit level.