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Sun, May 25, 2008 - Page 10 News List

OIL: Oil rallies on weak dollar, supply woes

AP , NEW YORK

Crude oil prices rallied near this week’s sky-high records on Friday on concerns that global output will not satisfy rising demand and speculation on the back of a weak US dollar.

New York’s main oil futures contract, light sweet crude for July delivery, rose US$1.38 to close at US$132.19 a barrel, shy of its record close at US$133.17 reached on Wednesday. It struck an intraday peak of US$133.71.

In London, Brent North Sea crude for July delivery hit a high of US$133.74, then settled at US$131.57 a barrel, up US$1.06.

On Thursday, Brent struck an all-time high of US$135.14 and New York crude reached a record US$135.09, before both contracts plunged as investors banked profits.

The two benchmark contracts have climbed more than US$6 in a week.

“While we do expect this bubble to burst and, make no mistake about it, this bubble will burst, we are not ready to say yesterday’s profit-taking selloff was the start of the correction,” the latest daily Schork Report on energy markets published on Friday said.

Oil prices crossed US$100 for the first time in January and hit US$120 by the start of this month. They topped US$130 on Wednesday after government data showed US energy inventories surprisingly fell last week.

Oil prices also are supported by unrest in oil-producing countries, OPEC’s unwillingness to hike output, and a weak dollar which makes commodities priced in the US unit cheaper for buyers using other currencies.

Speculators have poured into commodities as a hedge against inflation as the dollar sinks.

“With the surge in oil prices starting to look increasingly like a speculative mania, further increases are likely in the short term as more and more speculative capital is sucked into the vortex created by rising prices,” said Shane Oliver, chief economist of AMP Capital Investors in Sydney.

Oil at US$150 a barrel “is now just a few weeks’ trading away,” he said.

With supply struggling to meet demand, oil at US$300 per barrel “is not inconceivable on a five-year horizon,” Oliver added on Friday.

Robert Brusca of FAO Economics agreed.

“This is the most obvious bubble I have seen since we poured Little Mermaid bubble bath into the tub with the water running and my daughter squealed with delight at the resulting foam. No one is squealing with delight now,” Brusca said.

Algeria’s energy minister and OPEC president, Chakib Khelil, said Thursday that falling production in non-OPEC countries such as Russia has contributed to the spectacular rise in global oil prices.

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