Crude rockets to new record
ADAM SCHRECK
Friday, June 06, 2008
NEW YORK — Oil prices have shot up more than $10 (U.S.) to a new record above $138 a barrel after a Morgan Stanley analyst predicted prices could hit $150 by the Fourth of July. Traders were also rattled by rising tensions in the Middle East.
The meteoric surge builds on a huge jump on Thursday and sets the stage for the biggest two-day gain in the history of the New York Mercantile Exchange. A further weakening of the U.S. dollar helped keep prices high.
Light, sweet crude for July delivery jumped as high as $138.36 on the Nymex, then eased to
$137.81, up $10.02.
This easily topped the previous intraday record of $135.09 a barrel on May 22.
This latest surge is building on a $5.49 gain Thursday, which was the biggest single-day price increase in the history of the Nymex crude contract. That spike came as the U.S. dollar fell in response to comments by the European Central Bank suggesting the bank could raise interest rates.
Prices pushed sharply higher Friday after Morgan Stanley analyst Ole Slorer said he expected strong demand in Asia that could drive prices to $150 by July 4. Shipments from the Middle East are mimicking patterns seen in the third quarter last year, when Morgan Stanley based its “oil price spike” predictions on Atlantic Basin draws, he said.
“We made the same call using the same parameters, but now we are starting from much lower inventory levels,” Mr. Slorer said Friday.
“Asia is taking an unprecedented share” of Middle East exports to build up stocks, Mr. Slorer wrote in his report.
Further support came from remarks by Israel's transport minister that an attack on Iran's nuclear sites looked "unavoidable," the most explicit threat yet against Tehran from Prime Minister Ehud Olmert's government.
Worries of a potential disruption of the OPEC member's crude supply have helped support prices over the past year.
"We've had a huge historic rally on little fundamental input, other than the weakness of the dollar and the news this morning out of Israel that seems to have pushed some geopolitical risk premium back in the market," Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.
Meanwhile, U.S. gas prices at the pump continued to hover just shy of an average $4 a gallon, easing only 0.3 cent from Thursday's record. American drivers are now paying an average of $3.99 for a gallon of regular gas nationwide, according to AAA and the Oil Price Information Service; in many parts of the country, consumers are already paying well over $4.
Pump prices are bound to rise even further if oil sustains its advance. Retail diesel slipped a penny overnight to $4.76.
The dramatic reversal in what had been a weakening oil market began Thursday after ECB President Jean-Claude Trichet suggested the bank could raise interest rates and the euro climbed against the dollar. When interest rates rise in Europe, or fall in the U.S., the dollar tends to weaken against the euro.
Many investors tend to buy commodities such as oil as a hedge against inflation when the dollar is falling. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies, and analysts believe the dollar's protracted decline has been a major reason why oil prices have nearly doubled in the past year.
The euro strengthened against the greenback Friday.
“Oil fundamentals had recently started to reassert themselves with worries about demand destruction, but Mr. Trichet chased them away and re-invited financials to the party,” Olivier Jakob of Petromatrix in Switzerland said in a research note.
Earlier this week, Federal Reserve Chairman Ben Bernanke indicated that more interest rate cuts are unlikely in the U.S., sending the dollar higher and pushing oil prices lower.
Oil's decline from the record $135.09 hit May 22, though, has come largely on concerns about slackening demand, and the factors that slashed the prices by more than $10 are still present, analysts noted. They said they were uncertain whether Thursday's trading could be the start of a new surge higher or just an exception.
“The underlying oil fundamentals are, however, unchanged,” Mr. Jakob said, pointing to worries about falling global demand.
In other Nymex trading, heating oil futures rose 21.54 cents to $3.8962 a gallon while gasoline prices rose 12.32 cents to $3.4577 a gallon. Natural gas futures rose 24.8 cents to $12.767 per 1,000 cubic feet.
In London, July Brent crude shot up $5.65 to $133.19 a barrel on the ICE Futures exchange.
© Copyright The Globe and Mail
ADAM SCHRECK
Friday, June 06, 2008
NEW YORK — Oil prices have shot up more than $10 (U.S.) to a new record above $138 a barrel after a Morgan Stanley analyst predicted prices could hit $150 by the Fourth of July. Traders were also rattled by rising tensions in the Middle East.
The meteoric surge builds on a huge jump on Thursday and sets the stage for the biggest two-day gain in the history of the New York Mercantile Exchange. A further weakening of the U.S. dollar helped keep prices high.
Light, sweet crude for July delivery jumped as high as $138.36 on the Nymex, then eased to
$137.81, up $10.02.
This easily topped the previous intraday record of $135.09 a barrel on May 22.
This latest surge is building on a $5.49 gain Thursday, which was the biggest single-day price increase in the history of the Nymex crude contract. That spike came as the U.S. dollar fell in response to comments by the European Central Bank suggesting the bank could raise interest rates.
Prices pushed sharply higher Friday after Morgan Stanley analyst Ole Slorer said he expected strong demand in Asia that could drive prices to $150 by July 4. Shipments from the Middle East are mimicking patterns seen in the third quarter last year, when Morgan Stanley based its “oil price spike” predictions on Atlantic Basin draws, he said.
“We made the same call using the same parameters, but now we are starting from much lower inventory levels,” Mr. Slorer said Friday.
“Asia is taking an unprecedented share” of Middle East exports to build up stocks, Mr. Slorer wrote in his report.
Further support came from remarks by Israel's transport minister that an attack on Iran's nuclear sites looked "unavoidable," the most explicit threat yet against Tehran from Prime Minister Ehud Olmert's government.
Worries of a potential disruption of the OPEC member's crude supply have helped support prices over the past year.
"We've had a huge historic rally on little fundamental input, other than the weakness of the dollar and the news this morning out of Israel that seems to have pushed some geopolitical risk premium back in the market," Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.
Meanwhile, U.S. gas prices at the pump continued to hover just shy of an average $4 a gallon, easing only 0.3 cent from Thursday's record. American drivers are now paying an average of $3.99 for a gallon of regular gas nationwide, according to AAA and the Oil Price Information Service; in many parts of the country, consumers are already paying well over $4.
Pump prices are bound to rise even further if oil sustains its advance. Retail diesel slipped a penny overnight to $4.76.
The dramatic reversal in what had been a weakening oil market began Thursday after ECB President Jean-Claude Trichet suggested the bank could raise interest rates and the euro climbed against the dollar. When interest rates rise in Europe, or fall in the U.S., the dollar tends to weaken against the euro.
Many investors tend to buy commodities such as oil as a hedge against inflation when the dollar is falling. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies, and analysts believe the dollar's protracted decline has been a major reason why oil prices have nearly doubled in the past year.
The euro strengthened against the greenback Friday.
“Oil fundamentals had recently started to reassert themselves with worries about demand destruction, but Mr. Trichet chased them away and re-invited financials to the party,” Olivier Jakob of Petromatrix in Switzerland said in a research note.
Earlier this week, Federal Reserve Chairman Ben Bernanke indicated that more interest rate cuts are unlikely in the U.S., sending the dollar higher and pushing oil prices lower.
Oil's decline from the record $135.09 hit May 22, though, has come largely on concerns about slackening demand, and the factors that slashed the prices by more than $10 are still present, analysts noted. They said they were uncertain whether Thursday's trading could be the start of a new surge higher or just an exception.
“The underlying oil fundamentals are, however, unchanged,” Mr. Jakob said, pointing to worries about falling global demand.
In other Nymex trading, heating oil futures rose 21.54 cents to $3.8962 a gallon while gasoline prices rose 12.32 cents to $3.4577 a gallon. Natural gas futures rose 24.8 cents to $12.767 per 1,000 cubic feet.
In London, July Brent crude shot up $5.65 to $133.19 a barrel on the ICE Futures exchange.
© Copyright The Globe and Mail