Crude Oil Rises as Dollar Drops, Libya Warns of Production Cut
By Mark Shenk
June 26 (Bloomberg) -- Crude oil jumped more than $3 a barrel as the dollar weakened, Libya threatened to cut production and OPEC's president said prices may reach $170 by the summer.
Libya may curb output because of U.S. efforts to intimidate OPEC, the head of the national oil company said. The group's president, Chakib Khelil, said crude may surge on a European interest rate increase, France 24 reported. Oil, gold and copper climbed today as the dollar dropped because the Federal Reserve gave no signal of higher interest rates yesterday.
``OPEC's president said prices might be going to $170 at the same time Libya said it may cut output, which touched off buying in a market that was already moving higher on the weak dollar,'' said Jim Ritterbusch, president of Galena, Illinois-based energy consulting firm Ritterbusch & Associates. ``Traders then piled on because they were afraid they missed something.''
Crude oil for August delivery rose $3.60, or 2.7 percent, to $138.15 a barrel at 11:29 a.m. on the New York Mercantile Exchange. Prices touched $138.95 today, the highest since reaching a record $139.89 on June 16.
``These days there are so many people with fingers poised on the trigger that moves are exaggerated,'' Ritterbusch said.
The dollar is also lower on a forecast that the European Central Bank will boost interest rates. The currency's drop against the euro made commodities cheaper for buyers outside the U.S. The dollar was at $1.573 per euro as of 11:30 a.m.
``There's no reason for prices to rise $4 in 10 minutes,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``Things are very unsettled and now the worry is that the European Central Bank may raise rates, which would be the same as another Fed cut.''
Benchmark Rate
The Federal Reserve yesterday left its benchmark interest rate at 2 percent and said ``uncertainty about the inflation outlook remains high'' as energy and commodity prices continue to rise. Leaving the interest rate unchanged ended the most aggressive series of rate cuts in two decades.
``Commodities are rallying because there's a lack of confidence that the Fed will raise rates,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``They didn't raise rates yesterday and it doesn't look like they will raise them soon. Their statement yesterday was too wishy-washy.''
The Reuters/Jefferies CRB Index of 19 commodities jumped 9.88, or 2.2 percent, to 462.02, after earlier reaching a record 462.34. The index gained 48 percent in the past year.
A decision by the ECB to increase interest rates in July may cause the dollar to decline and prompt investors to buy more oil, Khelil, who is also the Algerian oil minister, told the Paris- based television channel. Prices would ease toward the end of the year, he said.
Summer Support
Threats against Iran would also support prices during the summer, he said. A political crisis that would stop Iran's oil production would push prices over $200 a barrel, to possibly $400 a barrel, he said.
Saudi Arabia pledged it will pump an extra 200,000 barrels a day next month to calm the oil market at a June 22 meeting. The kingdom hosted the summit of 35 producing and consuming countries in the Red Sea port of Jeddah.
``The Saudis go out of their way to have this specific meeting outside the OPEC frameworks, and if you're the OPEC president, you want to be important, so you come out of it and say $150 to $170,'' said Roger Read, an analyst at Natixis Bleichroeder in Houston. ``He's trying to prove he matters and OPEC matters and the Saudis don't make all the decisions.''
Libya's National Oil Corp. Chairman Shokri Ghanem declined to say when a decision would be made on whether to lower Libyan production or give any indication of the size of the cut under consideration. Libya ranks third in terms of oil production in Africa, behind Angola and Nigeria.
`Around the Corner'
An oil price of $150 a barrel may be ``around the corner,'' Ghanem said in a Bloomberg Television interview.
He said the reductions may also be made because of threats of sanctions against Iran and U.S. legislation allowing lawsuits against the Organization of Petroleum Exporting Countries.
``If they want the production capacity of OPEC to increase, they should facilitate foreign investments, not threaten with freezing their assets in the U.S,'' Ghanem said.
President George W. Bush has said he'd veto a so-called NOPEC bill passed in May by the House of Representatives, because it may limit the availability of gasoline and further increase fuel prices.
Brent crude oil for August settlement rose $3.62, or 2.7 percent, to $137.95 a barrel on London's ICE Futures Europe exchange. Prices climbed to a record $139.32 on June 16.
Last Updated: June 26, 2008 11:59 EDT