Speculators to blame, says Opec
May 9, 2008
Singapore - Crude oil traded near new all-time highs above $124 on Friday after the Opec cartel insisted the market is well-supplied and being driven by speculators.
New York's main oil futures contract, light sweet crude for June delivery, rose 62 cents to $124.31 a barrel in Asian trade after closing at a record $123.69 yesterday at the New York Mercantile Exchange.
In after-hours deals, the New York futures contract soared to an all-time high of $124.57.
Brent North Sea crude for June delivery was 78 cents higher at $123.62 a barrel.
In London yesterday the contract crossed $123 for the first time and jumped to a new intraday peak of $123.87 before settling at a record $122.84.
Oil prices have smashed one record after another in recent days.
"The oil market is so overwhelmingly bullish at this point ... it is looking at the 125-dollar mark as its next target," said Victor Shum, senior principal at Purvin and Gertz energy consultancy in Singapore.
Opec Secretary General Abdalla Salem El-Badri said that there was no shortage of crude oil, brushing aside US calls for higher output to dampen runaway prices.
"There is clearly no shortage of oil in the market," he said.
David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney, said El-Badri was reiterating Opec's view and "his words are not a surprise to the market."
Moore said Opec's stance has already been factored into market prices.
The 13-member Organisation of the Petroleum Exporting Countries produces about 40 percent of the world's oil, with current output at about 32 million barrels per day.
El-Badri also maintained Opec's stance that oil-market volatility has been driven by financial market developments and the increased flow of speculative funds into oil futures.
"The turmoil in some global equity markets and the considerable depreciation in the US dollar have encouraged investors to seek better returns in commodities, particularly in the crude oil futures market. This has driven prices higher," he said.
Shum agreed the bull run in crude has been driven by "investor interest" in commodities.
Venezuela, a key member of Opec, said yesterday its proven crude oil reserves had swelled to 130 billion barrels as of late April, marking a rise of 30 billion from its prior estimate.
Shum said the increase in Venezuela's reserves will not have much impact on the market's bullish sentiment.
"The increase in reserves does not mean that there will be an increase in output," he said. "No bearish news can dampen its momentum."
European Central Bank (ECB) chief Jean-Claude Trichet warned that inflation was a serious problem for the 15-nation eurozone and said people should get used to higher energy prices.
"As we have said on previous occasions, inflation rates are expected to remain high for a rather protracted period of time," Trichet stressed after ECB governors left the bank's benchmark lending rate at 4.0 percent.
"While the US Federal Reserve has tried to keep the wheels of the capital markets greased with lower and lower interest rates, the European Central Bank has remained resolute is guarding against inflation, and the dollar has suffered mightily, as a result, generating the steep climb in energy and food prices," said John Kilduff at MF Global.
A weakening US dollar makes oil cheaper for buyers using stronger currencies.
Analysts say oil prices have also been buoyed by continuing violence in Nigeria, Africa's largest crude oil producer, where attacks have cut production by about a quarter over the past two years.
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