Oil prices ease in Asia after hitting $100

Oil prices ease in Asia after hitting $100
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First Published: Thu, Jan 03 2008. 09 49 AM IST
Updated: Thu, Jan 03 2008. 09 49 AM IST
Singapore: World oil prices eased in Asian trading on 3 January after briefly hitting $100 a barrel for the first time, jolting oil-dependent economies.
In morning trade, New York’s main contract, light sweet crude for February delivery, was 43 cents lower at $99.19 a barrel. The contract closed $3.64 higher at a record $99.62 in New York on 2 January after briefly touching a record $100.
Its previous all-time intraday high was $99.29 on 21 November, followed by an all-time closing peak of $96.55 on 23 November. Brent North Sea crude for February was 64 cents lower at 97.20.
In London on 2 January, the contract soared $3.99 to settle at a record $97.84 per barrel after hitting an intraday historic high of $98. The records came on the first trading day of the new year.
“It’s going to have a huge impact on overall global inflation,” said Steve Rowles, a commodities strategist with CFC Seymour securities in Hong Kong. He said the immediate trigger boosting prices above the psychologically important $100 level appeared to be violence in Africa’s biggest oil producer, Nigeria.
At least 12 people were killed over the New Year’s holiday period in Nigeria’s oil capital Port Harcourt, raising fears that crude output could be further reduced. Violence by militants has reduced Nigeria’s oil output by about a fifth since the start of 2006.
But Rowles said the market’s main focus remains on geopolitical tensions brought to the fore after last week’s assassination of Pakistani opposition leader Benazir Bhutto. Phil Flynn, an analyst at Alaron Trading, said several factors were supporting crude prices: “More violence in Nigeria, concerns about stability in Pakistan, oil-inventory expectations and good old-fashioned cold winter weather.”
The record high oil prices worried investors and, along with a surprisingly sharp slowdown in manufacturing growth in the world’s biggest economy, helped US stocks plummet on Wednesday.
Shares on Asian bourses also traded lower Thursday on Wall Street’s lead. Australian share prices fell 1.42% in early trading and Singapore’s Straits Times Index was 1.77% lower. Rowles said a clearer picture of the oil market’s direction will come next week when trading returns to normal after the Christmas and New Year holiday period.
“The market is still quite thinly traded right now,” Rowles said. He added prices could go over $100 later on 3 January when the United States Department of Energy releases its weekly inventory report on energy stockpiles, which dealers expect to show another big drop in crude stocks.
American crude reserves -- which provide a safety cushion in the oil producing system -- tumbled by 3.3 million barrels to 293.6 million barrels in the week ending 21 December 21, the sixth weekly decline in a row. Rowles is expecting a drop of 3.5 million in this week’s report.
The simple laws of supply and demand explain part of the rise in global oil prices: growth in demand has been outstripping growth in supply because of underinvestment by producers and strong economic expansion in India and China.
This has led to a decline in spare production capacity, another safety cushion in the system, which means any disruption to supplies from one country cannot be absorbed by another.
Oil prices have quadrupled in five years, propelled by geopolitical tensions, surging demand from Asia and new buying interest from investment funds, analysts say. A weakening US dollar is also to blame because it makes oil cheaper for buyers using stronger currencies.
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First Published: Thu, Jan 03 2008. 09 49 AM IST
More Topics: Commodities | Energy | Oil | Asia | Price |