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Oil jumps above $140 on OPEC, Libya comments
2008-06-26
NEW YORK - Oil futures shot above $140 Thursday after OPEC's president said crude prices could rise well above $150 a barrel this year and Libya said it may cut oil production. The advance raised the likelihood that gasoline prices would also extend their march higher, and that prices of goods and services throughout the economy would also keep rising. Light, sweet crude crossed the $140 level minutes before the New York Mercantile Exchange closed Thursday, then retreated slightly to settle up $5.09 at a record $139.64. In after-hours electronic trading, prices rose as high as a record $140.39. Oil's latest milestone came as Chakib Khelil, president of the Organization of the Petroleum Exporting Countries, said he believes oil prices could rise to between $150 and $170 a barrel this summer. Khelil also said prices will decline later in the year, and aren't likely to reach $200 a barrel. Khelil joined a long list of forecasters who have made bold oil price predictions this year. Each new forecast -- such as Goldman Sachs' recent prediction that prices could rise as high as $200 -- causes a jump in prices as speculative buyers are drawn into the market. Meanwhile, the head of Libya's national oil company said the country may cut crude production because the oil market is well supplied, according to news reports. "Shokri Ghanem, the nation's top oil official, declined to say when a decision would be made on whether to lower production, or give any indication of the size of the cut under consideration," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note. Oil's move above $140 a barrel was the first for what's known as a front-month crude contract, or the contract with the earliest expiration date. But it was not the August contract's first foray above $140 -- August crude futures rose as high as $140.42 a barrel while July futures were still traded as the front-month crude contract. Many other later contracts have also traded above $140. The previous trading record for a front-month contract was $139.89, set by the July contract on June 16. The rising price of oil -- and the accompanying surge in gasoline prices to a national average above $4 a gallon -- has contributed greatly to the growing uneasiness about the economy across the U.S. Consumers forced to pay more for gas and for food and anything else that needs to be transported have been cutting back their spending on non-essentials, and the fear in many quarters is that they will continue to curb their outlays. Oil prices have more than doubled over the past year on concerns about rising demand in fast-growing economies such as China and India, and supply disruptions in the Middle East and Nigeria. The dollar's protracted decline against the euro has also been a major factor behind oil's rise, as many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Analysts have also attributed oil's rapid climb to speculative buying, with traders jumping into the market purely on the expectation that futures will continue to rise. Oil's record surge came late in the day on no new news, analysts said, suggesting late-session position squaring by investors. "A lot of volume comes in the last 45 minutes (of trading)," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. Oil futures were also rising as investors reassessed comments the Federal Reserve made Wednesday when it held a key interest rate unchanged. Many investors who had expected the Fed to raise interest rates in August now think a rate hike is unlikely until after the November election or next year, said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com. "Right now, the market's viewing the Fed as powerless," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. Interest rates affect the dollar; many analysts believe the Fed's rate cutting campaign, which began last September, had much to do with weakening the dollar against the euro and sending oil prices skyrocketing. The dollar slid against the euro after the Fed's comments Wednesday, and was down again on Thursday. In other Nymex trading Thursday, July gasoline futures rose 11.72 cents to settle at $3.5113 a gallon and July heating oil futures rose 13.42 cents to settle at $3.8834 a gallon. The expiring July natural gas futures rose 35.2 cents to settle at $13.105 per 1,000 cubic feet. Trading in expiring contracts is often volatile. In London, August Brent crude futures rose $5.50 to settle at $139.83 on the ICE Futures Exchange.
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