Singapore: Oil prices held steady Thursday after rising to a record above US$101 a barrel overnight as investors poured more cash into crude and other commodities as a hedge against inflation.
Oil futures on Wednesday pushed briefly past $101 a barrel after the US Federal Reserve lowered its forecast for US economic growth this year, convincing energy investors that the central bank will slash interest rates further.
“Investors are going into commodities for a safe haven, because they think commodities may perform better than equities and also may be hedges against inflation,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Lower interest rates can help the economy but tend to weaken the dollar, encouraging investors to shift funds into hard assets like gold or oil as a safeguard against inflation. After oil rallied above $100 a barrel, precious metals such as gold and silver also hit records.
The possible rate cut is also viewed as hopeful of bolstering a flagging US economy, which would assuage fears of weakening crude demand.
“We are expecting the US Federal Reserve will cut interest rates further,” said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. “That will help mitigate against the risks of US recession, and would likely be supportive for the oil price.”
On Thursday, light, sweet crude for April delivery added 18 cents to $99.88 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore.
The March contract, which expired Wednesday, rose overnight as high as $101.32 a barrel, a new trading record. It settled at a record close of $100.74 a barrel. The April contract, traded in greater volumes Wednesday, was unchanged at $99.70 a barrel.
Analysts said the rise this week in oil prices was not based on supply and demand fundamentals and that they expected increasing price volatility.
“We are in the spring season, when worldwide demand is typically lower and inventories are building. Yet we see a strengthening of oil,” Shum said. “It’s really a divergence.”
Prices have surged on geopolitical factors such as the possibility that the Organization of Petroleum Exporting Countries may cut its output at a 5 March meeting.
“What that all means is that investors could move out of oil as quickly as they moved in and so this situation could be unstable and pricing could drop as fast as it has gained,” he said.
Weighing on prices Thursday were expectations that the US Department of Energy would report later in the day that US crude inventories rose in the seven days to 15 February for the sixth straight week in a row.
“The general expectation is that you’ll see another increase in US crude oil inventories,” Moore said. “If there was an increase that would just take a bit of the edge off oil prices.”
Crude oil inventories were expected to rise 2.9 million barrels, according to a Dow Jones Newswires survey of analysts’ estimates.
Gasoline inventories were seen growing 1 million barrels while stocks of distillates, which include heating oil and diesel fuel, were expected to fall 1.5 million barrels.
Heating oil futures rose 0.33 cent to $2.7579 a gallon (3.8 liters) while gasoline prices added 0.74 cent to $2.5926 a gallon. Natural gas futures dropped 1.8 cents to $8.947 per 1,000 cubic feet.
Brent crude added 7 cents to $98.49 a barrel on the ICE Futures exchange in London.