Wednesday 2 January 2008

OIL PRICE AT RECORD $100

Oil price at record $100 a barrel

Oil prices have doubled from $50 a barrel in January 2007
Oil has traded at $100 a barrel for the first time.
Violence in Nigeria, Algeria and Pakistan, the weak US dollar and the threat of cold weather have all raised prices after the new year break.

Light sweet crude rose $4.02 to $100 a barrel in New York, prompting a drop in shares and a surge in gold prices.

There are concerns that the high price of oil will stoke inflation at a time when many central banks are trying to cut interest rates to stimulate growth.

US shares had already been hit on Wednesday by figures showing that the manufacturing sector was contracting.

The entire focus on $100 oil is frivolous

Tim Evans, Citigroup Futures Research


Oil industry in figures
Key events in oil's climb

After oil broke the $100 barrel they fell further, with the Dow Jones closing down 1.7% or 220.9 points at 13044.0.

"All of the factors that pushed us above $80 are now moving us higher," said Peter Beutel at Cameron Hanover in Connecticut.

"Until we get more supply or demand starts to take a hit, there is no reason we can't see any number."

Low volumes

But some analysts played down the relevance of passing the $100 mark.

"The entire focus on $100 oil is frivolous," said Tim Evans at Citigroup Futures Research in New York.

"It is not a magic number. It doesn't suddenly make this a fundamentally strong market."

Trading volumes were about half of their usual levels as traders returned from their new year breaks, which may have exaggerated the effect of speculative transactions, analysts said.

"I would imagine the speculators are the biggest drivers today," said Phil Flynn from Alaron Trading in Chicago.


$100 is just the beginning

Zachary Oxman, Wisdom Financial

The oil-producers' cartel Opec has also blamed speculators for the high price of crude and said that there is plenty of the fuel in the market to meet demand.

President Bush has said he would not be drawing on the US Strategic Petroleum Reserve (SPR) to try to bring down prices.

"This president will not use the SPR to manipulate (oil prices)," White House spokeswoman Dana Perino said.

"Doing a temporary release of the SPR is not going to change prices very much."

Moving on up?

There are those who believe that oil prices can rise significantly higher.

While daily price rises have been blamed on unrest in oil-supplying countries such as Nigeria, an underlying and significant factor has been an increase in demand from China and India.

"$100 is just the beginning," said Zachary Oxman, senior trader at Wisdom Financial in California.

"This is kicking off what you are going to see this year. There will be huge moves up in gold and huge moves up in crude."

Central banks such as the Bank of England and the Federal Reserve are worried that rising oil prices will prevent them cutting interest rates.

Expensive oil increases inflation, which makes it more difficult to make the rate cuts that the central banks may have to implement to boost growth.

IN BBC

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