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Oil slips after record $11 surge to new high

Oil slips after record $11 surge to new high
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First Published: Mon, Jun 09 2008. 11 36 AM IST
Updated: Mon, Jun 09 2008. 11 36 AM IST
Jonathan Leff / Reuters
Singapore: Oil slipped as traders booked profits from crude’s biggest one-day jump ever on 6 June, but OPEC’s resistance to pumping more oil kept prices near their latest record high.
US light, sweet crude for July delivery fell 93 cents to $137.61, softening as the dollar rebounded and the threat of economic damage from high costs mounted.
But traders gave up little of the unprecedented $10.75 surge on 6 June, when oil hit a new record of $139.12 amid frenetic buying triggered by the slumping dollar and comments by an Israeli minister about a possible attack on Iran, the world’s fourth-largest producer.
A forecast by investment bank Morgan Stanley that oil prices could top $150 a barrel by the July 4 US holiday added to Friday’s speculative fever, taking two-day gains to more than $16 a barrel and reversing two weeks of losses.
Oil’s six-year-long rally has gathered pace this year, with prices rising about 40% since January as funds hedge against the dollar and some bet that long-term oil supplies will struggle to keep up with demand in the decades ahead.
“What’s driving this ultimately is compound consumption. You can’t put 40 million cars a year on the road and think we’re going to consume less,” said Greg Smith, who manages $500 million in futures as the head of fund Global Commodities in Australia.
Oil’s direction has also become increasingly intertwined with the dollar, which edged up against the yen on Monday. The greenback slumped on Friday after data showed the US economy lost jobs for the fifth straight month and the unemployment rate shot up to its highest in more than three years.
OPEC’s take
At the weekend, key OPEC officials maintained they saw no need to consider pumping more oil now, despite the price surge and Australian Prime Minister Kevin Rudd’s call for G8 nations to “apply the blow-torch” to force producers to pump more crude.
“I think there is enough oil in the market, I did not hear anybody calling for a meeting,” Shokri Ghanem, head of Libya’s National Oil Corporation and the country’s top oil official, told Reuters in an interview.
OPEC, supplier of more than a third of the world’s oil, is next scheduled to meet on Sept. 9 to discuss oil policy.
Saudi Oil Minister Ali al-Naimi and his Pakistani counterpart agreed on Sunday that oil’s surge was not linked to fundamentals, the Saudi Press Agency reported.
While consumer nations have often urged the cartel to tame prices by pumping more crude, Group of Eight energy ministers meeting in Japan at the weekend focused on domestic efficiency and technology as the long-term solution to record oil, refraining from a call to pump more crude now.
OPEC ministers have repeatedly blamed speculation and other factors for the surge in prices. BP CEO Tony Hayward said the rise reflected imbalanced fundamentals.
“In a well functioning market where supply and demand are balanced, prices should be stable. Where prices are high, however, they show that supply is not responding adequately to rising demand,” he told a conference in Kuala Lumpur. Further support last Friday came from remarks by Israel’s transport minister that an attack on Iran’s nuclear sites looked “unavoidable.” It was the most explicit threat yet against Tehran from Prime Minister Ehud Olmert’s government.
The comments by Shaul Mofaz sparked criticism from defence officials and political pundits, who said they may be related to a power struggle in the centrist Kadima party as Prime Minister Ehud Olmert fights a bribery scandal.
Demand key
Oil’s latest boom has heightened the risk to economic growth in major consumer countries including the United States, whose economy already is hobbled by a housing crisis.
Some analysts say the market may be overlooking the subtle erosion in oil demand, which may not become more visible until later this year, setting prices up for a sharp pull-back.
“Until Q4, there certainly appears to be additional spike risk in an impatient market. But when the data becomes available, the price action could be as sharp on the way down as on the way up,” Lehman Brothers analysts said in a report.
Asian growth may be hit soon as governments from Indonesia to India cut fuel subsidies, while US consumers are being forced to bear record costs.
In the world’s biggest consumer, whose gasoline use alone accounts for over a tenth of the world’s oil demand, the average retail gasoline price topped $4 a gallon for the first time, a survey by the AAA travel group showed on Sunday.
Some warned of worse to come.
“I think it will go higher,” said Ghanem, who is also head of Libya’s OPEC delegation. “Easy, cheap oil is over, peak oil is looming.”
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First Published: Mon, Jun 09 2008. 11 36 AM IST