Sun, Sep 30, 2007 - Page 10 News List

Oil retreats after spike as traders lock in gains


Crude oil prices retreated on Friday after an early spike, as traders locked in gains after a storm in the Gulf of Mexico weakened as it moved ashore.

New York's main futures contract, light sweet crude for delivery in November, fell US$1.22 to close at US$81.66 per barrel. Last week New York crude hit an all-time record of US$84.10.

The price of London Brent crude oil on Friday rocketed above US$81 a barrel for the first time, but settled with a loss of US$0.86 at US$79.17 a barrel.

Prices spiked by more than US$2.50 on Thursday, with London smashing through US$80 for the first ever time owing to stormy weather in the rig-heavy Gulf of Mexico.

Hurricane Lorenzo barreled ashore from the Gulf of Mexico but rapidly lost its punch. Three people were reported killed in Mexico.

Downgraded to a tropical storm, Lorenzo soaked large areas of central Mexico, leading to fear of further landslides in mountainous regions.

Analysts said the record-breaking run for oil in the past week was not explained by market fundamentals, and that it appeared more speculative money was pouring in.

"Prices have seemingly moved inexplicably," Eric Wittenauer at AG Edwards said.

"The fundamentals don't support the strength and even the technicals suggest a correction is overdue. We think fund money is again playing in this market. This is not hedge fund money though; those funds will go both long and short," Wittenauer said.

He said that some see "an inflationary environment wherein the Fed [Federal Reserve] looks as though they may be willing to cut rates further," and that in that event, "it may make sense for traditional investors to hold commodities as an asset class."

The sliding US dollar has also buoyed oil prices.

A weak US unit makes dollar-denominated commodities cheaper for buyers with stronger currencies and therefore encourages demand.

Prices are finding "continued support from a weaker dollar and persistent concerns over global oil supplies ahead of the winter heating season," Sucden analyst Michael Davies said.

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