Oil climbs to 2-year high on frigid weather, rising demand

Oil climbs to 2-year high on frigid weather, rising demand
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First Published: Fri, Dec 24 2010. 01 26 PM IST
Updated: Fri, Dec 24 2010. 01 26 PM IST
Singapore: Oil rallied to its highest price in more than two-year on Friday, supported by unusually frigid weather that has fueled demand, depleted supplies and stoked inflationary worries from South Korea to India.
European benchmark ICE Brent crude for February hit an intra-day high of $94.74 a barrel, the highest level since October 2008, before easing back to trade up 32 cents at $94.57 a barrel by 12:20 pm.
Global benchmark US crude futures, which hit a 26-month high of $91.63 on Thursday, did not trade on Friday with the NYMEX floor closed for the Christmas holiday.
Brent, trading at a premium to US crude, has surged partly due to a severe cold snap in continental Europe and Britain.
Snow and more frigid temperatures were predicted in parts of Europe over the weekend, threatening to prolong chaos at airlines and rail networks and further boost fuel demand.
“With the upside surprise in oil demand continuing, and the persistence of cold weather helping in rebalancing the oil market further, prices are showing some urgency to enter a new phase of dynamics,” said analysts for Barclays Capital in a weekly report.
“The latest surge has brought $100 per barrel within range for Brent crude in particular.
Inflationary worries
Oil’s more than 30% climb from this year’s low in May has revived concerns that prices could once again impact economic growth for fuel importing countries.
South Korea’s finance minister warned on Friday that the fifth-largest buyer of crude oil buyer could face inflationary pressures sparked by rising global liquidity and commodity prices next year.
In India, the government is expected to decide next week whether to increase state-set fuel prices to cushion domestic oil retailers from the pain of rising crude prices and ease its own subsidy burden.
China, the world’s second biggest energy user, raised gasoline and diesel prices to record levels on Wednesday as it aimed to encourage refiners to boost supplies to meet demand.
The government said it would prohibit transport companies passing the rise on to the population. But higher commodity prices helped raise Chinese consumer inflation to a 28-month high in November.
Still, economists expect the inflationary impact from higher oil prices to be weaker than in the past in emerging economies due to rising consumer demand and booming expansion.
Eyes on Opec
With back-to-back 26-month highs, traders are now looking for the Organization of the Petroleum Exporting Countries to signal when it might begin pumping more crude.
Two key Opec ministers hailed oil prices as “fair” on Thursday, showing little inclination to pump more crude to stop rising oil prices.
Arab Opec ministers are meeting in Cairo this weekend where they may discuss oil production and price, but no formal decision on output will take place. Opec’s next scheduled meeting is for June.
“Once you get around $100, if it is sustained and the US, Euro area, UK and Japan continue to look weak in their economic growth profile, then at that point you might see some action (from Opec),” said Ben Westmore, a commodities analyst at National Australia Bank.
“But that is many months away and it is contingent on a number of things.”
US economic data on Thursday showed new US claims for jobless benefits dipped last week and consumer spending increased in November for a fifth-straight month, reinforcing views of a solid economic growth pace in the fourth quarter.
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First Published: Fri, Dec 24 2010. 01 26 PM IST
More Topics: Oil | Crude prices | Brent crude | ICE Brent | NYMEX |