Oil breaches $130 per barrel

05/22/2008

London — The price of oil soared past $130 a barrel for the first time yesterday on anxiety about stretched supplies in the face of strong demand for energy, and as the dollar weakened, analysts said.

New York’s main oil futures contract, light sweet crude for July delivery, reached a record pinnacle of $130.47. It later pulled back slightly to stand at 130.38, still a rise of $1.40 on Tuesday’s close.

Light sweet crude for delivery in December 2016, the most forwardly-traded contracted, stood at $138.38.

In London, Brent North Sea crude for July hit a historic high of $129.92 a barrel on Wednesday. Later it traded at $129.74, up $1.90.

The market was awaiting the latest weekly snapshot of energy inventories in the United States — the world’s biggest consumer of oil — to be published by US government on Wednesday.

Tony Nunan, of Mitsubishi Corp.’s international petroleum business, said concerns over supplies not keeping up with demand were driving prices higher.

“The market is technically and fund-driven right now,” he said on Wednesday, referring to investors buying into oil in hopes for higher returns.

David Moore, a commodity strategist at the Commonwealth Bank of Australia, said a weaker US dollar and “the recent trend for analysts to revise higher their oil price forecasts” are helping to push up prices.

Analysts added a need for diesel-fuelled power generation in earthquake-affected areas of China was boosting demand for the fuel.

“If there is an upside driver in energy these days, it is the diesel markets,” said MF Global analyst Ed Meir.

“Sentiment here continues to remain very bullish on concern that much diesel needs to be imported into China to power generators.”

The Chinese government said on Wednesday that the death toll from the 8.0-magnitude earthquake that devastated the nation’s southwest on May 12 had risen to 41,353.

Venezuela’s oil minister has blamed market speculators for the spiralling international price of crude and rejected increased production as a way to calm the market.

“Prices have risen spectacularly because of speculation, because of the devaluation of the dollar and world inflation,” the minister, Rafael Ramirez, said late Tuesday after a meeting with Organization of Petroleum Exporting Countries (Opec) secretary general Abdullah el-Badri.

Ramirez said “any rise in production would be immediately put in stock and this would have a negative impact on prices.”

As the price of a barrel of crude headed for $130, Ramirez insisted the problem was “not linked to supply and demand.” “There is enough oil on the market,” Ramirez declared.

The minister said that the “financial actors” are now more interested in futures contracts “which they consider safer than other investments.”

Analysts said a decision by Saudi Arabia — the world’s biggest oil producer — to raise output had not done much to lower crude prices.

Many officials belonging to the Opec argue that record oil prices are being driven by speculators seizing on geopolitical unrest, such as in Nigeria — Africa’s biggest exporter of crude.

Eric Wittenauer, analyst at Wachovia Securities, said reports about growing tensions between Washington and Tehran heightened concerns about a conflict that could affect oil supplies in Iran and the wider Middle East.

He said the market reacted to an article in the Jerusalem Post that said US President George W. Bush “intends to attack Iran before the end of his term.”

“We have certainly not ruled out the possibility of conflict later this year,” Wittenauer said.

In Washington on Tuesday the House of Representatives passed a bill authorizing the federal government to sue Opec in US courts over alleged price fixing, in the latest swipe at the cartel over skyrocketing oil prices. AFP

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