MARKET WATCH: Crude explores new highs near $110/bbl
Sam Fletcher
Senior Writer
HOUSTON, Mar. 11 -- Crude futures rebounded, soaring above $108/bbl in intraday trading Mar. 10 on
the New York Mercantile Exchange, despite a falloff in equity markets.
"The liquid commodity has become the liquidity commodity," said Olivier Jakob at Petromatrix, Zug,
Switzerland. "Despite the dollar index being stable for the last 2 days and equities making new lows, West
Texas Intermediate still managed to break through all attempts of [price] resistance."
New York-based Goldman Sachs Group Inc., the world's largest securities firm, notified clients on Mar. 10
that a cut in interest rates by the Federal Reserve Bank was likely. "That is about the only supportive factor
we could find [for the latest price spike] but [Goldman Sachs analysts] reversed their positions later in the
day to not expecting an emergency cut before the Fed's [next] meeting," said Jakob.
The front-month crude contract continued climbing to a record $109.72/bbl in overnight electronic trading
on NYMEX but was reported trading below $107/bbl in the Mar. 11 morning session. Meanwhile, the US
dollar fell to a new low against the euro that was trading at a record $1.55. The dollar's decline stalled,
however, when the Fed announced plans to lend $200 billion in Treasury securities to primary dealers,
secured for 28 days rather than overnight as is usual. That would allow bond market participants to
exchange mortgage-backed securities for the marketable Treasury securities. The Fed also authorized
increases in its temporary reciprocal currency arrangements with the European Central Bank and the Swiss
National Bank, generating more cash for financial markets.
"It seems to us that $100/bbl oil is starting to step out to wider acceptance," said Paul Horsnell at Barclays
Capital Inc., London. "Within just about 5 years, $40/bbl has gone in mainstream perception from being
thought of as ludicrously high to being thought of as ludicrously low." The price of $50/bbl "has followed
the same progression, and so perhaps now has $60[/bbl] oil," he said.
"In our view, the definition of high and low crude oil prices is a function of the position of the back of the
curve," Horsnell said. "When long-term prices were $20/bbl, then $40/bbl was a high price and
representative of a tight market. When long-term prices are $100/bbl, then $90/bbl would be low and
representative of a weak short-term market. The long-term price is driven in our view by the perception of
longer-term imbalances, and concerns that an insufficient investment signal has so far been given to bring
long-term demand and capacity growth into line."
Horsnell said, "We see the current Wall Street consensus average forecast for WTI in 2008 of $84/bbl as
being far too low, and we would continue to stress that our own $97.70/bbl forecast is distinctly
conservative in its assumptions."
In its Oil Market Report issued Mar. 11, the International Energy Agency in Paris reduced its global demand
forecast for 2008 by 80,000 b/d to 87.5 million b/d for a 2% annual growth rate. IEA reported crude supplies
from the Organization of Petroleum Exporting Countries fell 120,000 b/d to 32.1 million b/d in February.
Middle East Gulf and West African production was down 300,000 b/d, offset by a 150,000 b/d increase in
Iraqi supply.
Energy prices
The April contract for benchmark US sweet, light crudes set an intraday high of $108.21/bbl in regular
trading Mar. 10 on NYMEX before closing at a record $107.90/bbl, up $2.75 for the day. The May contract
gained $2.46 to $106.74/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.74 to $107.90.
Heating oil for April rebounded by 2.64¢ to $2.97/gal, wiping out the previous day's loss. The April contract
for reformulated blend stock for oxygenate blending (RBOB) continued climbing, up 2.06¢ to $2.71/gal.
The April natural gas contract also continued its advance, leaping 25.5¢ to $10.02/MMbtu on NYMEX. On
the US spot market, however, gas at Henry Hub, La., fell 24.5¢ to $9.58/MMbtu.
In London, the April IPE contract for North Sea Brent crude escalated by $1.78 to $104.16/bbl. The March
gas oil contract gained $4.50 to $977/tonne.
The average price for OPEC's basket of 13 reference crudes increased 48¢ to $99.48/bbl on Mar. 10. OPEC
officials said Mar. 11 that Ecuador's Oriente crude is now included in the OPEC basket price, effective Oct.
19, 2007.
Contact Sam Fletcher at samf@ogjonline.com.
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