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Oil hits another peak despite talk of higher output

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Oil hits another peak despite talk of higher output

By Chris Flood

Published: June 17 2008 03:00 | Last updated: June 17 2008 03:00

Oil surged to a record of almost $140 a barrel yesterday as traders brushed aside reports that Saudi Arabia planned to increase production in order to cool down the market.

But by the close Nymex July West Texas Intermediate had dipped 25 cents to settle at $134.61 a barrel after hitting a record $139.89. ICE August Brent reached a peak of $139.32 before easing back to trade 40 cents lower at $137.71 a barrel.

Saudi Arabia is expected to announce a supply increase when oil ministers meet in Jeddah on Sunday.

As the only member of Opec with meaningful spare production capacity, it is thought likely Saudi Arabia will increase output from the current level of 9.45m barrels a day to about 9.7m b/d, the highest level since 1981.

Traders said the Saudi proposals would provide only a limited counterweight to the numerous supply problems facing the market. In the North Sea, a fire has closed StatoilHydro’s 150,000 b/d Oseberg oil field while, in Nigeria, a strike against Chevron might still go ahead that could result in up to 350,000 b/d of production being lost.

Dealers said Saudi Arabia’s spare capacity buffer that responds to supply disruptions – from Nigeria, Venezuela, Iraq or Iran – would also be diminished by a production increase, potentially increasing the risk of a future price spike.

Opec has repeatedly blamed speculators and weakness in the US dollar for driving oil prices higher.

Data on speculative positioning from the Commodity Futures Trading Commission shows speculators reduced their bets on oil prices rising with the net long position down 10.8 per cent to 25,246 lots in the week ending June 10 when WTI reached $131.31.

In petrol, the net long position fell by 17 per cent to 53,624 lots, its lowest for nine weeks. “While the [spot gasoline] price has steadily risen over the last three months, the outlook for this summer’s US driving season is weighed down by weak consumer confidence, higher unemployment and average retail prices crossing $4 a gallon, not exactly supportive of rekindling buying interest,” said Harry Tchilinguirian, senior oil analyst at BNP Paribas.

Nymex July RBOB unleaded gasoline rose 2.6 cents to $3.4887 a gallon.

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