Oil Falls Back After Almost Hitting $140
How Saudi Boost
Will Affect Prices
June 17, 2008; Page C6
Crude-oil futures lost ground, failing to hold a rally that took prices to a record high early in the day as traders puzzled over the size and impact of a potential increase in supply.
Light, sweet crude for July delivery fell 25 cents, or 0.2%, at $134.61 a barrel on the New York Mercantile Exchange.
Nine minutes before New York pit trading opened at 9 a.m., Nymex crude rose to $139.89 a barrel, up more than $5 and a record for a front-month contract.
The surge came as the dollar weakened against the euro, giving buyers incentive to buy oil futures as a hedge against the currency. Norwegian oil company StatoilHydro ASA said a fire at a North Sea oil field had halted about 150,000 barrels a day of oil and condensate production. Some production had resumed, the company said later Monday.
After rising 40% this year, some observers wonder how much higher crude can go before prices cripple consumption.
Monday’s choppy trading underscores questions about the direction of the market, said Walter Zimmermann, an analyst at ICAP/United Energy in Jersey City, N.J. “It made a new high, then reversed lower. That’s not what the bulls want to be seeing.”
Looming over the market is the prospect of more oil from Saudi Arabia, the world’s largest crude exporter. As high prices sting national economies and threaten to smother long-term demand growth, the kingdom has hinted it will raise output. In May, Saudi Arabia produced 9.20 million barrels a day, according to the International Energy Agency.
Traders puzzled over the magnitude of the proposed new flows, however. The Middle East Economic Survey, an industry publication, last week reported Saudi Arabia’s new supplies will raise total output by 500,000 barrels a day, to 10 million barrels a day. Many analysts see 200,000 new barrels a day flowing from Saudi Arabia, adding to 300,000 barrels in fresh production the country’s oil minister announced one month ago.
Further complicating the picture, any new Saudi production would likely be less-desirable sour crude, which may need to be sold at a discount to find buyers.
“There’s this feeling in the trading community that they’ll believe the Saudi numbers when they see inventories build, or the tanker trackers start saying that supertankers are sailing,” said Adam Sieminski, chief energy economist at Deutsche Bank AG.
In other commodity markets:
GOLD: Futures rallied, led by a weak U.S. dollar and gains in oil that attracted speculative fund buying. August gold closed off its highs, rising $13.20 an ounce to settle at $886.30 on profit-taking, after setting a record high $897.00 earlier in the session.
CORN: Futures rose slightly but came off of record highs made early in the session, as profit-taking, lower oil prices and forecasts for drier weather tugged on corn prices. July hit a record high of $7.60 a bushel as the market initially digested Midwest flooding concerns and lost acreage, but settled up 0.75 cent at $7.3250.
Write to Gregory Meyer at [email protected]
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