Friday, June 27, 2008

Oil Jumps To New Record Near $142 A Barrel!

Oil leapt to a new record high near $142 a barrel on Friday, extending gains after surging nearly 4 percent in the previous session, as tumbling global stock markets triggered a wider commodities rally.

U.S. light crude for August delivery was $1.71 up at $141.35 a barrel by 5:25 a.m. EDT, off highs of $141.71. London Brent crude was $1.56 up at $141.39, off highs of $141.98.

World stocks fell to a three-month low as a fast deteriorating global inflation picture fanned concerns over the outlook for corporate profits, hastening the rush of investors' funds into commodities.

"It has a lot to do with asset allocations. The equity markets are under serious pressure, breaking support levels. When equities are going nowhere, the money is parked into commodities," said Olivier Jakob at Petromatrix.

The MSCI main world equity index fell more than 0.6 percent to its lowest since March, with the index on track for the worst monthly performance in percentage terms since September 2002, according to Reuters data.

By contrast, commodities fared better, with gold steady near a one-month record high while U.S. corn futures jumped to a fresh record high.


Oil's latest surge comes despite moves in the U.S. to curb energy market speculation.

U.S. lawmakers on Thursday have approved legislation which directs the Commodity Futures Trading Commission (CFTC), the futures market regulator, to use all its authority including emergency powers to "curb immediately" the role of excessive speculation in energy futures markets.

Oil prices have doubled from $70 a year ago on supply disruptions and geopolitical tensions in the Middle East. Rising flows of cash into commodities from investors seeking to hedge against inflation and the weak dollar have also added to gains.

"It may be months away before the legislation comes into effect but just the fact that it was passed is definitely enough to give the market a little bit of a bearish sentiment," said Toby Hassall, analyst at Commodities Warrants Australia.

Oil, which had been trading in a range for most of the week, broke out of that range after Libya said it was studying possible options to cut output in response to potential U.S. actions against OPEC countries.

"We are studying all the options," Libya's most senior oil official, Shokri Ghanem, told Reuters, adding oil producers needed protection from what he viewed as U.S. attempts to extend its jurisdiction beyond its territory.

OPEC President Chakib Khelil's comments that prices could reach $170 a barrel in the coming months, also fuelled the rally. "I forecast prices probably between $150 and $170 during this summer. That will perhaps ease towards the end of the year," he told France 24 television.

Talks between oil workers and Chevron continued in Nigeria, with the oil minister saying he was confident a deal could be reached, but union officials left open the possibility of a strike early next week. (Reuters)

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Blogger Letting the time pass me by said...

If the senario continue like this, surely there will be major economic recessions....

I really do not understand the world economy at the moment. I think there is a major artificial economic structure, with all prices seems taking its own direction not base on the supply and demand fundamentals....

I do think that different people have different views on the issue. Economist may have a different view in economic different from a doctor, an engineer, a lawyer or an archtect and of course people who do plantations, fisherman, paddy farmers, have a very different views of economics.

For example, the US economy that take their pride in their free trade market system, have been hit with some crisis over the years... The dot com, the Enron crisis, now we have a looming currency crisis that slowly hitting American economic.

When I look at Singapore, we can see that the country also have some kind of economic structure that can be taken as some form of subsidy. In some developed country, the government also provide a lot of subsidy to the people, even people who do not work receive some sort of assistance..

I think what is more important is for the leadership to understand the economic situation of the country and to outline the necessary measures to ensure the positive economic development in the country..

8:18 PM GMT+8  
Anonymous Old Timer said...

Having followed CNBC closely and listening to the views of experts and key economic institutional officers, I was a little perplexed why virtually everyone from Trichet to Bernanke to Paulson appears stumped by the cause of the rising price of crude oil.

As far as I can see, the price of crude is related to the US dollar value. But why? How?

It was only when Bernanke complained about emerging economies - and probably their soverign funds - pegging their currency to the US Dollar irregardless of their econmy's strength, that I began to understand.

Perhaps Trichet, bernanke, Paulson and all those experts and analysts were all playing sandiwara. They knew the answer all along but they accept that the financial investment world is an industry in itself and they cannot afford to break that industry ... Bear Sterns for example, being one of them.. The systemic repercussions would be too great.

My take therefore on the phenomenon of rising crude oil is that the producing or supplier countries pegged the price of oil to the US Dollar via the USD Index .. but inversely so as to ensure the oil rpoducing countries would obtain the true and consistent value of their commodity at all times.

Unfortunately or ironically however, the US Dollar is a function of the economic health of the US. And with the US now in recession, the US Dollar has been losing value ever since. Thus the continually rise in he price of crude compounded with hedgers - especially soverign funds - moving their money out of USD across to Euro or other safe currencies - each time poor economic data or news emanate from the US.

The reverse will happen when the US's economy recovers from recession and goes from strength to strength from that point onwards.

Since the US's economy is expected to recover from recession from third quarter 2008, expect the price of crude to reduce from that point onwards.

Looking at the phenomenon and timing, I am prone to think the USD index was applied at the point when the crude oil price was about USD50 per barrel. So it is likely the crude oil price will reduce until it stabilises at about USD50 - assumng the US manages its economy well and depending on how long this coming economic boom or uptrend will last until the next recession.

So, if you wish to punt, err .. sorry, invest or hedge your funds, do sell crude oil futures contracts in the third quarter. You may make a lot of money if you hold it long enough and assuming no one interferes to stop the price going down.

Just my two-cents worth of econmic theory. Good luck all!

10:26 PM GMT+8  

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