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Thu, Feb 24, 2005 - Page 12 News List

Weak dollar, cold snaps keep oil prices heated up

TRADING Analysts say prices are expected to ease in the short term as the cold weather in the US and Europe is temporary and the greenback will strengthen


Traders work in the crude oil futures pit at the New York Mercantile Exchange on Tuesday in New York.


Oil prices remained above US$51 a barrel in Asian trade yesterday after weakness in the US dollar exacerbated the impact of a cold snap in the US and parts of Europe, dealers said.

At 3:55pm, New York's main contract, light sweet crude for delivery in April was down US$0.04 to US$51.38 a barrel from its close of US$51.42 on the New York Mercantile Exchange on Tuesday.

The March contract had jumped US$2.80 in New York to close at US$51.15 a barrel in New York before it expired. The April contract also rose more than US$2.

Jorge Montepeque, global director for market reporting at energy information giant Platts, said the cold snap in the northeastern US and parts of Europe resulted in a surge in demand for heating fuel, bolstering oil prices.

"When you have unexpected late demand in the season, it just causes a rising impact into the market," Montepeque said.

He said the increase was likely to be a "temporary spike" caused by the cold snap although prices would remain volatile.

"I think once this weather goes out we'll probably descend below US$50 and when the [US summer] driving season kicks in it will go up again," he said.

Victor Shum, a partner with US energy consultancy Purvin and Gertz, said fears of a weaker dollar following news the South Korean central bank was planning to diversify its foreign reserves had also helped push up prices.

"That is bullish for the market because oil is traded in US and producers may want to therefore cut production in order to boost their revenue," Shum said.

"Also, when the dollar falls against other currencies, it becomes less expensive to buy crude oil in these countries, therefore demand could potentially go up," he said.

The dollar steadied in Asian trade yesterday after South Korea's central bank denied it planned to shed its dollar assets, saying there had been "misunderstanding" over its previous day's statement.

South Korea has the world's fourth-largest dollar reserves and the speculation over its holdings of the US currency highlighted concerns in other Asian countries about their hug exposure to the US unit.

As the dollar regained lost ground, concerns remained in the oil market over the outcome of a meeting next month of OPEC amid speculation that the cartel may cut production.

"In some ways, oil prices are fuelled by the concern about what OPEC may do next month, the weakening US dollar and the cold spell," Shum said.

David Thurtell, an oil analyst with the Commonwealth Bank of Australia, said prices are expected to ease in the short term as the cold weather would be temporary and the US dollar regains strength.

"I think the market seems to be in a bit of a panic even though OPEC issued comments saying that [output] wouldn't be cut. The market seems to be ignoring that," Thurtell said.

"Technically speaking, we could see, in the short term, a high of US$55 and a low of US$48," he said.

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