Saturday, 5 January 2008

Oil at 99.29 dollars in Asian trade

Friday January 4, 2008

Oil prices were higher in Asian trade on Friday after profit-taking kicked in as the price broke through the symbolic 100-dollar mark for the second straight day, dealers said.

Record-high prices led Japan's prime minister on Friday to pledge "all possible measures" to reduce the economic impact of expensive oil, while the European Commission warned that high oil prices would affect growth in the 27-nation bloc.

In afternoon trade, New York's main contract, light sweet crude for delivery in February, was 11 cents higher at 99.29 dollars a barrel.

The contract struck a fresh all-time record of 100.09 dollars per barrel in early US floor trading Thursday but then settled back to close at 99.18 dollars.

On Wednesday, the contract had briefly touched 100 dollars for the first time, stoking inflation fears when an expected US economic slowdown may hamper the global economy.

The initial spike to 100 resulted from "really just one trade which was like a stunt," but more trades pushed it above 100 again on Thursday, said Victor Shum, of international energy consultancy Purvin and Gertz in Singapore.

"We have eased off from the 100 level primarily because of some profit taking," Shum said.
Brent North Sea crude for February delivery was up 30 cents at 97.90 dollars a barrel.

In London trading on Thursday, Brent North Sea crude for February settled down 24 cents at 97.60 dollars after hitting a record 98.50 dollars earlier in the day.

Analysts say rising oil demand has outstripped growth in supply. They point to booming Asian economies like China and India and insufficient investment by oil exporters, which has led to a decline in spare production capacity.

Geopolitical tension and new buying interest from speculative investors like investment funds are also behind a quadrupling in the oil price over the last five years, analysts say.

A weakening US dollar, which makes oil more affordable for buyers in stronger currencies, is also cited as a factor for the rise in prices.

US crude reserves, seen as a safety buffer in the oil market, fell by 4.0 million barrels in the week ended December 28, the US Department of Energy said Thursday in its weekly report on energy stockpiles.

That was the seventh week in a row that stockpiles had dropped but Shum said the latest decline was largely due to traders' year-end tidying of their books for tax purposes.

"So the market reaction was somewhat lukewarm," Shum said.

Analysts said the symbolic 100-dollar price level would heap pressure on the OPEC oil-producing cartel to increase output when it meets on February 1.

Worries over the impact of record oil prices have hit nations big and small.

Cambodia's Prime Minister Hun Sen on Thursday banned the use of state vehicles for anything other than official business in a bid to save fuel.

"If we don't save petrol, we will face difficulties because of increasing world oil prices," he said.

Shum said oil is likely to break 100 dollars again over the next few days on a possible influx of new money into commodities as investors balance portfolios at the start of the year.

Phil Flynn at Alaron Trading said oil and other commodities were "on fire" as traders bid up prices helped by a soft dollar.

The double effect of surging oil prices and a weakening US dollar pushed gold to its own historic peak on Thursday, when it struck 870.00 dollars in New York.

In inflation-adjusted terms, oil is still slightly below the level it reached in 1980, Shum said.

He forecast an average price in the 80 to 100-dollar range on the New York Mercantile Exchange for 2008, up from an average in the low 70s last year.

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