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Financial Times: Oil closes in on $100 a barrel level

By Javier Blas in London
Published: November 7 2007 07:57 | Last updated: November 7 2007 07:57

Crude oil and gold prices surged to fresh highs on Wednesday amid renewed dollar weakness as investors sought refuge from a second wave of credit turmoil.

The closure of several North Sea oil production platforms because of bad weather was underpinning the market, traders said. ConocoPhillips and BP were expected to reduce production in the area ahead of a powerful storm.

West Texas Intermediate crude oil jumped in after hours trading another $1 to a record of $98.03 a barrel, extending the previous day almost $3 rise to $97.07 a barrel. Oil prices have risen about 60 per cent so far this year.

Traders warned it might test the $100-a-barrel level as soon as Wednesday if US crude oil inventories show another weekly decline.

Jordan Kotick, a technical analyst of Barcalys Capital in New York, said that the vertical rise in oil prices was breezing through resistance levels with little or no effort and following a breach of $97.60 a barrel WTI was set “to test the psychologically important $100 a barrel level.”

“If resistance around 103 fails to stem the rise, then long-term charts would suggest 118.70 is a distinct possibility for next year,” Mr Kotick added.

In early London morning trading, WTI moved $1.21 higher to $97.91 a barrel.

The price jump on Tuesday was helped by a bullish report from the Energy Information Administration, the statistical arm of the US Energy Department, warning that “tight fundamentals” would continue to push up oil prices.

The EIA forecast that crude oil prices would “exceed $80 per barrel over the next several months” and trade above $75 a barrel in 2008 as “global oil markets will likely remain stretched.”

It said the Organisation of the Petroleum Exporting Countries would need to add another 700,000 barrels a day on top of its current production increase of 500,000 b/d to balance the market through the first quarter of 2008.

The cost of using options contracts to insure against crude oil trading at $100 in a year’s time surged to $4.15 per barrel, up almost 70 per cent since the end of October.

The combination of strong crude oil prices and a weakening dollar boosted gold prices on Wednesday to a fresh 28-year high of $836.75 an ounce, just below its all-time high of $850 reached in January 1980.

Spot bullion was trading in early London morning at $833.5 an ounce.

Precious metals traders said investors were adding to their gold positions – no one was selling. David Holmes, head of precious metals at Dresdner Kleinwort in London, said a rise to $850 was “very much on the cards”.

John Reade, head of metals strategy at UBS in London, upgraded its one-month gold forecast to an “inevitable” $850 an ounce.

The dollar fell to a record low against the euro of $1.4666 as investors bet that the US Federal Reserve would further cut interest rates to prop up the economy hit now by a second wave of credit turmoil and comment from Chinese authorities about diversification of their currency reserves.

Sterling matched a near 26-year high against the dollar, rising to $2.0906 on speculation the Bank of England would keep interest rates on hold as the Fed cuts.

Copyright The Financial Times Limited 2007 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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