Maryelle Demongeot/ Reuters
Singapore: Oil rose above $128 extending gains after its biggest ever one-day rise in the previous session. This came as the US dollar weakened on signals the European Central Bank may raise interest rates this year.
US light crude for July delivery rose $0.31 a barrel to $128.10 a barrel having settled up $5.49 at $127.79 today, erasing two days of sharp losses triggered by worries that high oil prices were starting to dent demand.
The contract was up $6.08 to $128.38 in after-hours trading, its largest outright gain on record and up by nearly 5% from Wednesday’s settlement.
London Brent crude rose $0.5 to $127.59 today.
“A $6 jump is quite a major move. Financial flows came back. If oil continues to rise, it could test $135 or $140. The market is in a state of uncertainty after such a move,” Marc Lansonneur, Societe Generale’s head of commodities derivatives in Asia, said.
“Today will be a key day because we’ll see whether the rebound was purely technical or not. It could set the trend for next week,” he added. The dollar was steady against the euro on Friday, having fallen by more than 1% on Thursday after European Central Bank President Jean-Claude Trichet said a number of policymakers wanted higher interest rates and a hike was possible as soon as next month.
The sharp reversal in the dollar put longer-term worries about weakening oil demand on the backburner, after they were rekindled earlier this week when India and Malaysia decided to raise domestic fuel prices to cope with bulging subsidy bills.
The International Energy Agency, adviser to 27 industrialised countries, issues its latest forecasts next week and has said it may lower its 2008 demand growth projection further, after having already more than halved it to 1.03 million barrels per day (bpd), from an early estimate of 2.2 million bpd in July 2007.
But some analysts say subsidy cuts in Asia will not be enough to slow oil use.
“World oil demand growth is still accounted mostly by China, the Middle East and Latin America - and through the summer, there is no reason to expect a material slowdown in demand growth in these areas,” said Harry Tchilinguirian, oil analyst at BNP Paribas in London in the bank’s June global outlook.