Singapore, 19 September Oil prices could hit $85 a barrel after establishing new record levels above $82 following the Federal Reserve’s move to boost the struggling US economy, analysts said today.
The market has been concerned that an economic slowdown in the US, the world’s biggest energy consumer, would dampen oil demand and lead to lower prices.
At 1:15 pm , New York’s main futures contract, light sweet crude for October delivery, was trading at $82.09 a barrel, up 58 cents from its close of $81.51 a barrel in late US trades on Tuesday.
The price for the contract had earlier hit an all-time high of $82.38.
Brent North Sea crude for November delivery was 63 cents higher at $78.22.
“We are in a new territory for oil pricing,” said Victor Shum, a Singapore-based analyst with energy consultancy Purvin and Gertz.
“Crude oil prices... rose in the wake of the Fed’s decision to cut rates by 50 basis points,” Australia’s Commonwealth Bank said in a market commentary.
“The rate cut is seen as reducing the risk of a severe slowing of the US economy which may also have impacted on oil demand.”
Tony Nunan, manager for energy risk management at Mitsubishi Corp in Tokyo, said the 85 dollar mark was now within striking distance.
“Prices have broken through a lot of strong technical resistance already. I assume 85 dollars is a round number that the market is targetting,” he said.
Tetsu Emori, a Tokyo-based fund manager with Astmax Co Ltd, agreed that $85 could be the next target, which if surpassed could lead prices to go as high as $90.
Emori, however, would not give a timetable, saying oil prices would depend on the US economic situation after the Fed’s move and whether oil production facilitites in the US Gulf of Mexico region are affected during the peak hurricane season this month.
Nunan said the half-point cut in key rates by the US Federal Reserve to 4.75% was aimed at calming fears of a slowdown in the US economy, which has been grappling with a crisis in the subprime housing loan market.
“It’s a pretty big boost to the equity markets and it’s calming the fears about a slowing economy. It is also providing more fuel to the fire in the oil markets,” Nunan said.
The US rates reduction is expected to cushion the impact on the general economy of a credit crunch sparked by the subprime crisis. The fear is that an economic slump in the United States, the world’s biggest economy and a key global growth engine, will dent oil demand.
Nunan said concerns over falling US energy inventories ahead of the Northern Hemisphere winter season have also helped boost oil prices, highlighting tight supplies amid high demand.
“The key issue will be how much the inventory will continue to fall,” he said.