NEW YORK — Crude prices extended their march into record high territory Thursday, shooting up more than $2 a barrel as a falling dollar and the prospect of lower interest rates attracted more investors to the oil market. Retail gas prices, meanwhile, rose closer to records above $3 a gallon.
Light, sweet crude for April delivery rose $2.95 to settle at a record $102.59 a barrel on the New York Mercantile Exchange. Prices continued rising after the Nymex closed, setting a new trading record of $102.97.
A pair of dismal economic reports drew more money into the oil market, as did Federal Reserve Chairman Ben Bernanke's comments that the economy is not immediately threatened with stagflation, a combination of economic weakness and rising inflation. The Commerce Department said gross domestic product grew at only a 0.6 percent rate in the fourth quarter, below estimates and at only a fraction of the previous quarter's growth rate, while the Labor Department said applications for unemployment benefits rose by 19,000 last week, more than expected.
Rather than viewing such news as bad for oil demand, investors chose to see it as confirmation of their beliefs that the Fed will continue cutting interest rates to try to shore up the economy. Interest rate cuts tend to weaken the dollar, and crude futures offer a hedge against a falling dollar. Also, oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.
"I really think that this is oil being viewed as ... a financial instrument," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Crude prices are within the range of inflation-adjusted highs set in early 1980. A $38 barrel of oil then would be worth $97 to $104 or more today, depending on the how the adjustment is calculated. A direct comparison with daily Nymex prices is difficult because historical data, gathered before the crude futures contract was created in 1983, are based on average monthly prices posted by oil producers.
Different analysts have varying benchmarks for an inflation adjusted high. For example, John Kingston, director of oil at Platts, the energy research arm of McGraw-Hill Cos., arrived at an all-time high of more than $104 a barrel, which he said adjusts for delivery costs to and from Cushing, Okla., the Nymex crude oil delivery terminal. Using his own inflation adjustment, A. G. Edwards & Sons, Inc. oil analyst Eric Wittenauer arrived at a widely-quoted estimate of $103.76.
However, an inflation calculator maintained by the Bueau of Labor Statistics estimates that $38 in 1980 is worth $97.34 today. A Federal Reserve Bank of Minneapolis calculator puts $38 in 1980 dollars at $99.43 today.
Oil's rally is pulling gas prices higher. At the pump, retail gasoline prices rose 0.9 cent overnight to a national average of $3.161 a gallon, according to AAA and the Oil Price Information Service. Prices are within 7 cents of May's record of $3.227 a gallon. The Energy Department expects prices to peak near $3.40 a gallon this spring; many analysts think prices will rise much higher than that.
On Wednesday, oil prices fell $1.24 a barrel after the Energy Department reported crude inventories rose more than expected last week. But that reflected a rare reaction by oil investors to supply and demand fundamentals. Oil prices have been far more affected in recent months by dollar- and interest rate-driven investment decisions, analysts say.
"(Fundamentals) have no relationship to price right now," Flynn said. If prices were responding to supply and demand, fundamentals, they would be falling, he said. Several recent forecasters have lowered oil demand growth predictions for this year due to the slowing economy, and domestic oil inventories have been growing.
Oil prices have received some support in recent days from word of a technical glitch that temporarily disrupted the flow of a small amount of crude out of Nigeria. Eni SpA denied earlier reports that its Brass River oil terminal had been attacked by rebels. Turkey's recent invasion of Northern Iraq in search of Kurdish rebels has also been supportive, Flynn said, but these stories are not enough in and of themselves to explain why oil continues to trade above $100.
Many analysts believe it's just a matter of time until the fundamentals reassert themselves on the market, pushing prices down.
Other energy futures also rose Thursday. March gasoline futures rose 1.8 cents to settle at $2.4957 a gallon on the Nymex, while March heating oil futures rose 7.45 cents to settle at $2.8456 a gallon.
April natural gas futures jumped 38.3 cents to settle at $9.443 per 1,000 cubic feet. The Energy Department said inventories fell by 151 billion cubic feet last week, slightly less than expected.
In London, April Brent crude rose $2.63 to settle at $100.90 a barrel on the ICE Futures exchange.
source: 28feb2008
NEW YORK — Oil futures soared to a record all-time settlement above $102 a barrel Thursday, bolstered by the dollar's slide to new lows.
Light, sweet crude for April delivery climbed $2.95, or 3%, to settle at $102.59 a barrel on the New York Mercantile Exchange, well above Tuesday's previous record closing price of $100.88. The contract continued to rise in electronic trading and was recently at $102.97 a barrel, a new intraday record.
Brent crude on the ICE futures exchange rose $2.63 to $100.90 a barrel, also a record settlement.
Crude futures have risen in four of the last five sessions as the U.S. dollar's decline against rivals pressures oil exporters to raise prices and draws investment funds into commodities. Gold, corn and soybeans also made new all-time highs Thursday.
"In view of a 50% devaluation of the dollar, people are moving into any kind of a market that they think would preserve purchasing power, and black gold is one of them," said George Gero, vice president of global futures at RBC Capital Markets in New York.
The euro shot to a new high above $1.5200 against the dollar, rising nearly 1% on the day amid expectations for further declines in U.S. interest rates. Federal Reserve Chairman Ben Bernanke reiterated a grim outlook for the U.S. economy in a second day of Congressional testimony, reinforcing the market's belief the Fed will continue to cut interest rates at its meeting next month.
Mr. Bernanke's concerns about a slowdown were substantiated in data released earlier in the day. The Commerce Department left unchanged its 0.6% growth estimate for U.S. gross domestic product from October through December, much weaker than the third quarter's 4.9% growth rate.
The number of U.S. workers filing new claims for unemployment benefits rose by 19,000 last week, the Labor Department reported, higher than what analysts had expected.
The economic reports came a day after the U.S. Energy Information Administration reported domestic crude and gasoline stockpiles have risen for seven and sixteen straight weeks, respectively, while total U.S. oil demand was also softer.
But the dollar seemed to have more impact on the oil market than the specter of weaker demand.
"As the dollar is going to fall as interest rates go lower, there's hedging going on," said Mark Waggoner, president of Excel Futures in Huntington Beach, Calif. "It does have to stop at some point — we will see a correction — but in the near term this thing is on fire."
Supply jitters stirred the crude market early on. In Nigeria, crude oil production from Eni SpA's Brass River terminal has been cut by around 50,000 barrels a day, traders of West African crude said Thursday. An Eni spokeswoman confirmed there had been some disruption to flow along a secondary crude pipeline in recent days, and that some output had been cut following a technical problem.
A forecast for cold next month in the Northeast, the world's largest heating oil market, helped drive March heating oil futures to a new record settlement of $2.8456, up 7.45 cents, or 2.7%. March reformulated gasoline blendstock, or RBOB, rose 1.80 cents, or 0.7%, to $2.4957 a gallon. Both contracts expire Friday.
The market is likely to focus increasingly on the Organization of Petroleum Exporting Countries ahead of the group's March 5 meeting on output levels. U.S. Energy Secretary Samuel Bodman on Thursday reiterated his call for OPEC to increase production.
The top oil official of OPEC member Venezuela told reporters in Caracas his country may support either an output cut or a motion to leave production unchanged.
"We would support either option," Oil Minister Rafael Ramirez said.
source: 28feb2008
NEW YORK — Crude-oil futures rallied nearly $3 to a record closing level of $102.59 a barrel Thursday, as investors' voracious appetite for oil shows no sign of abating.
Oil prices got a boost from the dollar's tumble to record lows against some of its major counterparts.
Crude oil for April delivery gained $2.95 to end at $102.59 a barrel on the New York Mercantile Exchange. This is a record closing level for a front-month contract.
In after-hours, electronic trade, the crude contract continued to surge, hitting an all -time high of $102.77 a barrel.
"The dollar's entrenched downtrend [is] attracting more speculative buyers to the crude oil market," said Michael Fitzpatrick, an analyst at MF Global, a futures brokerage, in a research note.
"Aggressive buying behavior by investors into commodity markets, including energies, will probably not be shelved anytime soon, especially since inflation fears have been stirred up again, as investors continue to seek diversification," Fitzpatrick said.
Oil surged on the back of weakness in the U.S. dollar, which tumbled to fresh record lows against the euro and the Swiss franc after lackluster economic data and Federal Reserve Chairman Ben Bernanke's comments raised fears about the U.S. economy.
The trade-weighted dollar index, which measures the greenback against a basket of six major currencies, fell 1.2% to 73.68. See Currencies.
Thursday's economic news was downbeat. The Commerce Department reported Thursday that the U.S. economy grew at an unrevised 0.6% annual rate for the fourth quarter.
Also Thursday, the Labor Department reported that first-time claims for state unemployment benefits rose 19,000 last week, reaching the highest level since late January.
A weaker greenback tends to push up prices for dollar-denominated commodities, such as oil, because those commodities become less expensive for buyers holding other currencies.
"There aren't any fundamentals justifying this price," said James Williams, energy economist at WRTG Economics, who expects oil to retreat eventually. "We have no examples of a recession in the last 30 years that was not followed by a drop in crude-oil prices."
"What I see is a market that's just trading on emotions, and I think it's about to collapse," Williams said. On March 5, when members of the Organization of Petroleum Exporting Countries meet, "they're not going to cut production with prices above $100 a barrel," he said.
Earlier Thursday, oil prices were supported by reports of a partial shutdown of production in Nigeria, Africa's largest oil producer and the U.S.'s fifth-largest crude supplier.
Crude-oil production from Eni SpA's Brass River terminal was cut by around 50,000 barrels a day as a result of
an attack by a militia group, Dow Jones Newswires reported on Thursday, citing West African traders.
On Wednesday, crude closed below $100 a barrel after surging to a high of $102.08, coming under pressure after data showed the nation's crude inventories grew by more than expected in the week ended Feb. 22.
Natural gas surges
Natural-gas futures rose sharply after data showed U.S. inventories fell for a 14th week. April natural-gas futures rallied 38 cents to end at $9.44 per million British thermal units.
U.S. natural-gas inventories fell 151 billion cubic feet in the week ended Feb. 22, the Energy Department reported on Thursday. Inventories have been falling since mid-November and have dropped nearly 2,000 billion cubic feet.
At 1,619 billion cubic feet, U.S. natural gas stockpiles were 133 billion cubic feet less than last year at this time, the Energy Department said. After the data, natural gas surged to its highest level since February 2006.
Rounding out the early action in energy, March reformulated gasoline gained 2 cents to $2.50 a gallon and March heating oil rose 8 cents to end at $2.85 a gallon. Both contracts are due to expire on Friday.
Gold futures ended with strong gains, surging to a record high of $975 an ounce in after -hours trading, propelled by the dollar's tumble to a new low against the euro.
In other commodity news, futures and options broker MF Global ) said Thursday that it would take a $141.5 million bad debt provision after one of its Memphis brokers, identified as Evan Dooley, vastly exceeded his authorized trading limit Wednesday morning. He was trading wheat futures in Chicago. Shares in MF Global dropped as much as 23%.
Commodities traders said actions by the brokerage to cover Dooley's large short position appeared to cause a violent jump in wheat prices in Chicago Wednesday. Read more about wheat futures.
Polya Lesova is a MarketWatch reporter based in New York.
Moming Zhou is a MarketWatch reporter, based in San Francisco.
source: 28feb2008
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