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Oil prices spike to historic highs beyond 135 dollars PDF Print E-mail
Friday, 23 May 2008

Agency

World oil prices broke yet more records on Thursday, catapulting above 135 dollars a barrel for the first time on runaway fears about rampant demand exceeding supply, analysts said.

Brent North Sea oil struck a historic height of 135.14 dollars a barrel and benchmark New York light sweet crude hit an all-time peak of 135.09 dollars.

"It seems there is no stopping to soaring oil prices," said Andrey Kryuchenkov at the Sucden brokerage in London.

"Investors doubt that the market will be able to meet ever growing demand in the long run, with booming emerging market economies underpinning robust demand for energy," he added.

After posting fresh highs, New York's main oil futures contract, light sweet crude for July delivery, pulled back to 134.28 dollars a barrel, which was still a rise of 1.58 dollars on Wednesday's close.

In London, Brent North Sea crude for July delivery was up 1.16 dollars at 134.33 dollars a barrel.

Crude futures have risen by more than a third since the beginning of 2008 when they struck 100 dollars for the first time, lifted by a unrest in oil-producing countries, falling energy inventories, OPEC's unwillingness to hike output, high Asian demand for fuel and a weak dollar.

Prices breached 130 dollars for the first time on Wednesday and continued higher on news that US energy inventories had unexpectedly fallen last week.

"Currently, market psychology is trumping fundamentals" of supply and demand, said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

"The psychology is that the oil market is tight. Even though there is no shortage, global oil demand continues to grow and supply growth is restrained," he added.

"Oil has performed better than equities and bonds. There is money looking for better returns and oil has offered better returns and continues to offer better returns."

Global oil supplies could meanwhile fall far short of need and expectations in the next 20 years, the International Energy Agency is concluding with a vast effort of detective work on production prospects, a newspaper report said on Thursday.

The Wall Street Journal reported that a sweeping review of existing oil fields and investment in oil extraction was leading the IEA to conclude that the ageing of existing oil fields and inadequate investment meant that "future crude-oil supplies could be far tighter than previously thought."

An already rallying oil market was spurred further on Wednesday by the US Department of Energy's weekly snapshot of energy inventories, which surprisingly showed declines.

The DoE report showed that US crude oil stocks fell in the week ended May 16, by 5.4 million barrels to 320.4 million barrels. Most analysts' had expected a build of 300,000.

Gasoline inventories dropped by 800,000 barrels, to 209.4 million, confounding expectations of a gain of 250,000 barrels.

The gasoline news was particularly market-sensitive, coming less than a week before the official start of the peak demand season for motor fuel.

The rapid surge in oil prices also comes as the US Federal Reserve has slashed its 2008 growth forecast for the US economy, the world's biggest oil consumer.

On Wednesday, the Fed cut its 2008 economic growth forecasts to a range of 0.3 to 1.2 percent, from its prior forecast of 1.3 to 2.0 percent in January. The central bank cited higher oil prices as a key factor weighing on momentum.

Oil prices have rocketed in part because of weakness of the dollar, which makes dollar-priced commodities cheaper for buyers using other currencies.

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

On the supply side, OPEC head Abdalla Salem El-Badri has voiced concern about volatility in the oil market.

"The secretary general expressed concern about the volatility that has characterized the market in recent times," the Vienna-based cartel said in a statement from Caracas, where El-Badri met Venezuelan President Hugo Chavez as part of a week-long working visit to OPEC members Venezuela and Ecuador.

"OPEC will continue to strive to bring stability to the oil market," the statement said.

However the Organization of Petroleum Exporting Countries, which produces 40 percent of the world's oil, is reluctant to bend to US-led demands for it to pump more crude to help cool rocketing prices.

OPEC insists that the market is well supplied and that record prices reflect speculative investment activity rather than underlying supply and demand conditions.

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