Sharp oil price rises set to continue

London: Oil prices are likely to continue to rise rampantly for awhile yet as supply worries and investor demand for commodities outweigh concerns of economic slowdown. Crude hit a record high of $101.32 on Wednesday. The price has climbed from below $50 at the start of 2007 and below $20 in early 2002. “From here, we think that the next stage may well be a period of consolidation in the high $90s, and that could include increasingly frequent moves above $100,” said Paul Horsnell of Barclays Capital. Prices have risen in part because of expectations that the Organisation of the Petroleum Exporting Countries (Opec), rather than increase oil output, will maintain or even cut supply at a meeting on March 5. Opec argues that factors beyond its control, such as speculation, are boosting prices. One Opec minister made clear on Thursday that oil’s push into triple digits would not bounce the group into changing supplies. Reaction “We will not just react to $100 oil,” Qatar’s oil minister, Abdullah Al Attiyah, said in a telephone interview. “Opec will move when it sees physical demand for its oil.” Besides the likelihood of no extra Opec oil, technical analysis – using past price moves to predict future direction – indicates crude may move higher still, according to London-based ODL Securities, a trading firm. Andy Riddell, joint head of commodities at ODL, said charts indicate that US crude and Brent could move higher to $103.00 and $101.50 respectively, before the Opec meeting. “It’s technical and speculative buying,” he said of oil’s record run. “You look at all the chart patterns and they are pointing upwards.” Others see limited scope for prices to hit further highs in coming weeks. Oil demand typically weakens in the second quarter as consumers in the northern hemisphere use less fuel for heating. Crude oil inventories in the United States, the top consumer, have risen for the last five weeks. “There may still be some potential for prices to press even higher, but we do see rising stocks and the approach of the second-quarter supply-demand surplus period as gradually closing the window on further gains,” said Tim Evans, analyst at Citi Futures. “The market may not yet be satisfied that a top is at hand, but we still think one is forming.” Other factors that could puncture the rally include a steep drop in US or Asian equities, signs that the US economic slowdown is spreading or a surprise boost in Opec supply, MF Global said. While there may be no single factor that explains the latest run-up, which coincided with rises in other commodities such as aluminium and copper, some advise against betting that oil will fall just yet. Indicators Signs of rising inflation are attracting a flow of money into commodities, which are traditionally used as hedges against inflation. “We still do not see much in terms of news that justifies the blistering rally we have had over the past few days, but neither would we advocate going short here,” MF Global said. Source : Reuters