Friday, July 4, 2008

Oil rises to record above $US146 a barrel

Oil rises to record above $US146 a barrel

Hyun Young Lee

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OIL closed above $USUS145 a barrel for the first time as market participants shrugged off a stronger US dollar to test new highs.

Light, sweet crude for August delivery settled up $US1.72, or 1.2 per cent, at $US145.29 a barrel on the New York Mercantile Exchange, after hitting a new all-time high of $US145.85 a barrel in overnight trading. Brent crude on the ICE futures exchange settled $US1.82 higher at $US146.08 a barrel, down from an intraday record of $US146.69 a barrel.

"For the moment, the market is still preoccupied with the question: how high can it go?" said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

"That's the focus in this market and it's not letting a stronger dollar get in the way."

Crude prices have shot up 50 per cent in the year to date as the market eyes ferocious oil demand in Asia and the Middle East, despite weaker global economic conditions and a significant pullback in US demand.

But many participants have also pointed the finger at speculators, pouring funds into commodity markets as global economic conditions started to deteriorate last year.

Investors have sought oil as a safe haven against the weakening US dollar and volatile equity markets, as well as a hedge against inflation. Participants pointed to the European Central Bank's interest rate increase and key US jobs data - both of which came in at or near expectations - as leading the oil market.

US non-farm payrolls shrank by 62,000 in June, the sixth straight loss, the Labour Department said, close to market expectations of a 55,000 loss. While the report gave the US dollar a leg up, the ECB's quarter of a percentage point rate hike to 4.25 per cent had a bigger impact.

The US dollar jumped against the euro as ECB President Jean-Claude Trichet appeared to rule out further rate increases. Recovering US stock markets boosted the greenback further, with both the Dow Jones index and the Standard & Poor's 500 finishing higher on the day.

Oil prices flirted briefly with negative territory on the currency moves, but momentum remains firmly biased to the upside, with many traders seeing any dips as a buying opportunity.

Mr Evans noted that the US dollar has been trading "sideways or higher" in the past three months, while oil prices have repeatedly smashed through records.

Reaction from a US government report earlier this week showing yet another drop in US oil stockpiles spilled over into the latest session. Sentiment also remained buoyant from the International Energy Agency's annual medium-term outlook released on Tuesday, which indicated tightening global oil supplies through 2013 despite trimming demand growth forecasts.

Traders appeared to pay little attention to increased crude output from Saudi Arabia, the world's biggest oil producer. At Madrid's World Petroleum Congress, Saudi oil minister Ali Naimi confirmed that the kingdom's output would reach a 27-year high of 9.7 million barrels a day this month.

He reiterated that speculation, not supply constraints, was driving the oil price, a stance the Organisation of Petroleum Exporting Countries has studiously maintained during crude's dizzying rise.

Trading volumes were light overnight as participants squared their positions ahead of the Independence Day weekend in the United States.

Many expect crude oil to keep aiming higher next week.

"The trend is definitely still up," said Tom Bentz, an energy broker at BNP Paribas in New York. "We'd need to get back down to yesterday's low at $US140 before people even start thinking of a turnaround."

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