Oil Spikes Above 133 Dollars
on Tighter US Supplies
US$ 133.17 per Barrel
Agence France-Presse 21may2008
NEW YORK — Oil struck new highs above 133 dollars a barrel Wednesday after the US government reported unexpected declines in crude and gasoline stocks in a market pressured by rising Chinese demand.
New York's main oil futures contract, light sweet crude for July delivery, crossed 130 dollars for the first time then hours later raced to a record high of 133.82 dollars after the worrying US energy stockpiles report.
The benchmark futures contract closed a whopping 4.10 dollars higher at a record 133.17 dollars.
In London, Brent North Sea crude for July delivery settled at a record 132.70 dollars a barrel, a gain of 4.86 dollars. Brent hit a record intraday high of 133.34 dollars.
An already rallying oil market was galvanized by the US Department of Energy's weekly snapshot of energy inventories, which unexpectedly showed declines.
The DoE report Wednesday showed US crude oil stocks fell in the week ended May 16, by 5.4 million barrels to 320.4 million barrels. Most analysts' had expected a build of 300,000.
Gasoline inventories dropped by 800,000 barrels, to 209.4 million, confounding expectations of a gain of 250,000 barrels.
The gasoline news was particularly market-sensitive, coming days ahead of the US summer-holiday driving season that kicks off this weekend for the Memorial Day holiday Monday.
Americans have already begun buying less gasoline as prices at the pump hit new highs. The change in driving habits is raising concerns about a slowdown in consumer spending, the main engine of the world's biggest economy.
The US oil inventory data "is going to put more pressure on the already record-high prices of crude oil futures," IFR analysts said in a note to clients.
The rapid surge in oil prices came as the US Federal Reserve slashed its 2008 growth forecast for the US economy, the world's biggest oil consumer .
The Fed on Wednesday slashed its 2008 economic growth forecasts to a range of 0.3 to 1.2 percent, from its prior forecast of 1.3 to 2.0 percent in January. The central bank cited higher oil prices as a key factor weighing on momentum.
Crude futures have soared by a third in value since the start of 2008, when they breached 100 dollars for the first time.
Oil prices are also surging because of a weak dollar, which makes dollar-priced commodities cheaper for buyers using other currencies.
Analysts noted that a need for diesel-fueled power generation in earthquake-affected areas of China was boosting demand for the fuel.
"Fundamentally the crude prices are being supported by concerns over gasoline supplies ahead of the US driving season and on increased demand for diesel from China as they look to boost supplies ahead of the Olympics and after last week's earthquake," said Sucden analyst Nimit Khamar.
On the supply side, OPEC head Abdalla Salem El-Badri said Wednesday he was worried about volatility in the oil market.
"The secretary general expressed concern about the volatility that has characterized the market in recent times," the Vienna-based cartel said in a statement from Caracas, where El-Badri met Venezuelan President Hugo Chavez as part of a week-long working visit to OPEC members Venezuela and Ecuador.
"OPEC will continue to strive to bring stability to the oil market," the statement said.
OPEC has insisted that the market is well supplied and that record prices reflect speculative investment activity rather than underlying supply and demand conditions.
Oil's Surge Deepens Stocks' Dive
PETER A. MCKAY / Wall Street Journal 21may2008
Soaring oil prices continued to pummel the stock market and hack away at investors' hopes for a resumption of the rally that had carried equities well off the lows seen during the worst of the credit crisis earlier this year.
The Dow Jones Industrial Average, which plunged nearly 200 points Tuesday, shed another 227.49 points on Wednesday, falling 1.8% to 12601.19, off 5% on the year. All 30 of its components finished in the red. The two-day slide was the Dow's worst in nearly three months.
Crude futures surged to a fourth straight record, up $4.19, or 3.3%, to $133.17 a barrel in New York. Oil continued to surge in electronic trading, climbing over $134 a barrel. The gains came after a report showing U.S. inventories of crude fell last week, contrary to analysts' expectations for growth in reserves. Crude oil has leapt 39% this year and is more than double its price of 52 weeks ago.
The stock market has been stopped in its tracks during the latest run higher by crude oil. The Dow rallied more than 11% from its early-March lows to May 2, but is off 3.5% since.
Investors fear that higher crude prices, while a boon to energy companies, may undercut consumer spending, which accounts for better than two-thirds of U.S. economic output. The recent rally in stocks had been predicated, in part, on the notion that the U.S. economy might be able to avert an outright recession.
"The rise in energy products is going to be the death knell for the consumer," said Douglas Kass, head of the hedge fund Seabreeze Partners Management in Palm Beach, Fla. "The stock market has sort of been in denial about this until now. I mean, these (oil) prices are punitive."
High energy costs could also start to carve into corporate profits. Businesses are already struggling to cope with the rapid ascent in fuel prices. American Airlines parent AMR said Wednesday that it plans to cut flights and introduce bag-checking fees as it looks to offset a huge jump in the cost of jet fuel. Other carriers are expected to follow suit.
AMR's shares plunged 24.2%; rival airlines also cratered. Continental Airlines plummeted 13.15% and Delta Air Lines declined 16.4%. UAL Corp., parent of United Airlines, dropped 29.5%.
The market's losses accelerated Wednesday afternoon after the Federal Reserve released minutes of its policy makers' April meeting. The minutes bolstered the view the central bank is unlikely to cut interest rates anytime in the near future. The Fed also said that it now expects inflation to be higher than it envisioned in its last forecast and foresees a higher unemployment rate and slower economic growth.
The S&P 500 tumbled 1.6%, or 22.69 points, at 1390.71, off 5.3% on the year. All its sectors ended in the red Wednesday, led by a 2.9% decline in the basic-materials sector.
The technology-focused Nasdaq Composite Index was down 1.8%, or 43.99 points, to 2448.27, off 7.7% on the year. The small-stock Russell 2000 fell 1.2%, or 8.53 points, to 727.11, off 5.1% on the year. Both measures are on four-day losing streaks.
Don Bright, of the proprietary firm Bright Trading in Chicago, said he still believes the market is stuck in a trading range, although further losses in the days ahead would confirm that a longer pullback trend is now in effect. "The market can absorb these kinds of losses for two days in a row, but not much longer," said Mr. Bright.
Financial stocks suffered Wednesday after a Financial Times report that ratings agency Moody's incorrectly assigned top-tier AAA ratings to some instruments because of a computer problem and then failed to correct the error after it was unearthed in early 2007. Moody's, which like other ratings agencies has come under criticism for giving top ratings to hard-to-value investments, plunged 15.9%.
Art Hogan, chief market analyst at Jefferies & Co., said Moody's problems don't appear likely to do significant harm to other firms' balance sheets in the months ahead. But given the litany of write-downs and losses that companies have already announced throughout the credit crisis, investors are apt to sell the sector quickly at any sign of new trouble, then parse the details later.
"This story definitely has people concerned," said Mr. Hogan. "It's a new wrinkle." Lehman Brothers Holdings shares fell by 5.8% while Morgan Stanley declined 4.3%. Citigroup fell 4.8%.
A decline in the dollar also weighed on stocks and helped boost commodities. The U.S. Dollar Index, which tracks the greenback's value against a basket of six major foreign denominations, was off 0.7%, or 0.5 point, at 71.90.
Gold climbed as investors sought safe havens. Futures on the metal ended higher for a fifth straight day, up 0.9%, or $8.50, at $9.38 per ounce in New York. The contracts are up 7.2% over the course of the recent winning streak.
Bonds fell. The 2-year note was down 6/32, yielding 2.407%. The benchmark 10-year note was off 8/32, yielding 3.810%. The 30-year bond fell 4/32 to yield 4.544%.