Oil Prices To
Reach Record Highs
By Bloomberg
18 March, 2005
Bloomberg
Crude
oil prices in New York, which rose above $57 a barrel for the first
time yesterday, are likely to increase on speculation demand will expand
faster than supply, a Bloomberg survey of analysts and strategists showed.
Thirty-two of 50
respondents, or 64 percent, predicted oil prices will climb next week.
Twelve, or 24 percent, said they will fall and six forecast little change.
It was the most bullish survey since Oct. 21.
Prices rallied this
week after OPEC ministers agreed in Isfahan, Iran, to boost output targets
1.9 percent. Saudi Arabian Oil Minister Ali al-Naimi said higher production
is needed to meet rising demand later this year. Speculators are increasing
their bets that oil demand will rise faster than the Organization of
Petroleum Exporting Countries can expand capacity.
``Prices won't come
down until we start to see signs that demand growth is slowing,'' said
Kyle Cooper, an analyst with Citigroup Inc. in Houston. ``Speculators
moving into commodities have poured money into the market.''
Crude oil for April
delivery rose $1.97, or 3.6 percent, to $56.40 a barrel in the week
through yesterday on the New York Mercantile Exchange, surprising the
47 percent of poll respondents who predicted a decline. Sixteen of the
last 24 surveys correctly predicted the market's direction.
The contract fell
24 cents, or 0.4 percent, to $56.16 at 9:04 a.m. in Singapore. The price
touched $57.60 yesterday, the highest since the contract was introduced
in 1983. Prices have tripled in a little more than three years.
Spare Capacity
``There is a lack
of spare production, and this brings nervousness to the market,'' Rafael
Ramirez, the minister for Venezuela, OPEC's third-largest member, said
yesterday in an interview in Isfahan. ``We cannot do much more,'' said
Ramirez. ``OPEC can help influence prices, but there are other strong
factors'' at work in the market.
Sheikh Ahmad Fahd
al-Sabah, the Kuwaiti minister and president of the OPEC, said on March
15 that the group has 2 million barrels a day of spare capacity. OPEC,
excluding Iraq, had about 1.7 million barrels a day of spare capacity
last month, according to a Bloomberg survey. The group announced its
higher output quotas on March 13.
``The market was
just looking for an excuse to move higher and I doubt there was much
OPEC could have said or done to change this,'' said Kurt Barrow, an
energy consultant at Purvin & Gertz Inc. in Singapore.
``Over the coming
months, as second-quarter demand becomes more clear, I think we could
see a notable correction. Until that time, I expect we are in for continued
$50 plus prices.''
Demand Growth
The International
Energy Agency, an adviser on energy policy to 26 industrialized nations,
forecast in a report last week that oil consumption will climb by 1.81
million barrels, or 2.2 percent, to 84.3 million barrels a day this
year. It was 330,000 barrels more than the agency forecast last month.
``The market's reaction
to OPEC's quota increase signals higher demand is expected,'' said Chen
Chaur-Shi, an oil markets analyst at commodity futures trader Nihon
Unicom Corp. in Tokyo. ``The upward trend should continue as funds continue
buying based on rising commodity indexes.''
Some investors have
shifted to commodities over the past year because returns have been
better than in the stock market.
Long positions held
by hedge funds and other speculators, or bets that oil prices will rise,
were at their highest level since May last week, according to the Commodity
Futures Trading Commission. The speculative long positions outnumbered
shorts by 76,663 contracts in the week ended March 8, according to the
commission. Net longs peaked at 82,451 in March 2004.
U.S. Inventories
Poll respondents
calling for a fall in prices said U.S. inventories of crude oil and
gasoline should meet demand when consumption rises this summer.
``Crude and the
products have been bid up to levels that are way beyond what the fundamentals
of supply and demand justify,'' said Jason T. Sunderland, an independent
oil trader in New York. ``Increasing crude oil inventories, supported
by OPEC's decision to increase production, will lead to lower oil prices.''
U.S. crude-oil supplies
rose 2.6 million barrels to 305.2 million last week, the highest since
June, according to an Energy Department report released on March 16.
The increase left supplies 8.6 percent higher than a year ago, the department
said. The U.S. consumes a quarter of the world's oil.
Gasoline supplies
dropped 2.9 million barrels to 221.4 million last week, according to
the department. They remain 11 percent higher than a year ago.
``This oil bull-run
is out of line with production and inventory realities,'' said Jason
Schenker, an analyst with Wachovia Corp. in Charlotte. ``Despite the
recent sizable draw in gasoline inventories, we are still well-prepared
for the summer. It's only a matter of time before the price falls and
next week could be when we see some price pullback begin.''