DOW `10838 and economy can only take so much of this.
175 - 200 point fall from here into tomorrow with more Monday if oil doesn't do some fancy backstepping
economic effect can NOT be ignored
Oil Prices Briefly Climb Above $55 Mark
Thursday March 3, 2:26 pm ET
By Brad Foss, AP Business Writer
Oil Prices Briefly Surpass $55 a Barrel As Global Demand Growth Underpins Market Psychology
Oil futures prices charged higher Thursday and briefly surpassed $55 a barrel as global demand growth and supply tightness underpinned bullish market psychology, though some traders were stunned by the rapid advance of prices.
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With gasoline futures also rising sharply, analysts said consumers should expect the average pump price, now $1.93 per gallon, to climb in the weeks ahead.
Cold weather, the weak dollar and jitters about an upcoming meeting of the Organization of Petroleum Exporting Countries have contributed to the recent rise in oil prices, which are now 52 percent above year ago levels. However, many brokers say speculative buying is magnifying the move higher.
"About the only way to explain this rally in the market is fund buying," said James Cordier, president of Liberty Trading Group in St. Petersburg, Fla. "They're pushing the market higher while producing nations are sitting on their hands and smiling ear to ear. This is incredible."
Analysts said that while crude futures could certainly rise further they do not expect prices to remain at these heights for very long. Eventually, producers and refiners seeking to lock-in future profits -- and speculators looking to cash in -- will sell into the market, they said.
That said, with the spring and summer driving season around the corner, analysts believe prices will remain well above $40 a barrel in the months ahead.
Light, sweet crude for April delivery was up $1.50 to $54.55 a barrel in afternoon trading on the New York Mercantile Exchange, where prices rose as high as $55.20 per barrel. Oil futures settled at a peak of $55.17 per barrel on Nymex last October, though prices would have to surpass $90 per barrel to meet the inflation-adjusted peak set in 1980.
Brent crude futures rose $1.50 to $52.72 on London's International Petroleum Exchange.
In other Nymex trading, gasoline futures rose 5.12 cents to $1.535 per gallon, following at 8-cent rise the day before.
"This is especially bad news for consumers, given the fact that gasoline prices have risen from early March to the middle of May in 19 of the last 20 years," said energy analyst Peter Beutel of Cameron Hanover Inc.
The case made in support of these high prices rests on the belief that demand growth, particularly in China but also in the United States, is rising fast enough to make it difficult for the world's oil producers to pump some 84 million barrels a day while also maintaining an output cushion in the event of an unexpected disruption.
China's oil thirst is expected to grow by 10 percent in 2005 to about 7 million barrels a day, according to PFC Energy, a Washington-based consultant. U.S. demand is forecast to grow this year by about 1 percent to 20.8 million barrels.
The other "big picture" factor, according to PFC oil analyst Jamal Qureshi, is the decline of the dollar versus other currencies "which makes OPEC more willing to let prices test higher."
Because crude is priced in the U.S. currency, OPEC countries want to maintain buying power in Europe and other countries after they sell their barrels into the global market. At the same time, with oil being relatively cheaper when bought with other currencies, analysts believe that could drive up worldwide demand.
Oil prices are also up sharply in recent weeks due to fears that the Organization of Petroleum Exporting Countries could rein in production to head off a seasonal drop in demand during the second quarter.
Recent signals from OPEC officials that the cartel is unlikely to cut production at its next meeting -- as some had earlier suggested -- have failed to calm the market.
Victor Shum, oil analyst at Texas-based Purvin & Gertz in Singapore, said this was because a production raise by OPEC would be in heavy, sour crude, as opposed to the light, sweet crude that is in demand.
On Wednesday, the U.S. Energy Department said in its weekly supply report that commercial inventories of crude oil rose by 2.4 million barrels to 299.4 million barrels, or 9 percent above year-earlier levels. The supply of gasoline in the world's largest consuming country grew by 1 million barrels to 224.5 million barrels, or 10 percent above last year's level.
"There's plenty of supply," Cordier said.
The supply of distillate fuel, which includes heating oil and diesel, shrank by 1.8 million barrels to 110 million barrels, or 3 percent below year-earlier levels. But there's only a few weeks left of winter, Cordier said.
Heating oil futures rose 1.65 cent to $1.525 per gallon in afternoon trade on Nymex.
Associated Press Writer Wee Sui Lee in Singapore contributed to this report. |
