Monday, March 10, 2008

Crude Oil Rises Above $107 to Record as Returns Outpace Stocks

Crude Oil Rises Above $107 to Record as Returns Outpace Stocks

By Mark Shenk

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Crude oil rose above $107 a barrel in New York to a record as investors purchased futures because the returns have outpaced those of financial markets.

Oil in New York surged 78 percent over the past year as the S&P 500 and Dow averages dropped. China, the second-biggest oil- consuming country, increased crude-oil imports by 18 percent last month and halted overseas shipments to meet rising demand.

``Momentum coupled with sufficient fundamental underpinnings, such as the Chinese oil import data for February, keeps propelling us,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The grab for hard assets is on due to the lack of confidence in the rest of the markets at the moment.''

Crude oil for April delivery rose $1.75, or 1.7 percent, to $106.90 a barrel at 11:18 a.m. on the New York Mercantile Exchange. Futures surged to $107.44 a barrel today, the highest since trading began in 1983.

Goldman Sachs Group Inc.'s forecast for 2009 U.S. crude-oil prices was raised to $105 from $90 a barrel, in a report dated March 6. The Goldman oil equity analysts in London said that the increase was warranted because non-OPEC production is approaching a plateau while Asian economies spur consumption.

``We're witnessing an ongoing flow of fund buying, which isn't particularly motivated by the particulars of the petroleum market,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``Prices have rallied to such an extent where sellers have backed off. Any time prices go lower the buyers come right back into the market.''

Hedge-Fund Bets

Hedge-fund managers and other large speculators increased net-long positions, or bets on higher oil prices, in the week ended March 4, a Commodity Futures Trading Commission report showed.

``Clearly the fundamentals don't matter at this point,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``We've seen bubbles in other markets over the years and eventually they end. It's impossible to see when that will be the case here.''

Brent crude for April settlement rose 81 cents, or 0.8 percent, to $103.19 a barrel on London's ICE Futures Europe exchange. Futures reached a record $103.98 a barrel on March 7.

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