Oil Prices To Reach Record Highs
By Bloomberg
18 March, 2005
BloombergCrude 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.''
