May 19,2008 From www.bloomberg.com
May 19 -- Crude oil traded above $126 a barrel in New York on speculation supply risks and weakness in the U.S. dollar will sustain investor demand for the commodity.
Oil reached a record $127.82 on May 16 after the dollar dropped the most in a month and Goldman Sachs Group Inc. raised its price forecast, citing supply constraints. Prices are being driven by speculation and won't be affected by Saudi Arabia's planned 300,000 barrel production increase, Iraqi Oil Minister Hussain al-Shahristani said yesterday.
``There's a lot of money sort of pushing oil through to the levels it's at,'' Ben Barber, a broker at Bell Commodities in Melbourne, said in a Bloomberg Television interview. ``This steep rise is a short-term thing'' and the Federal Reserve will act to support the U.S. dollar from here, he said.
Crude oil for June delivery was at $126.62 a barrel, up 33 cents, in after-hours electronic trading on the New York Mercantile Exchange at 9:15 a.m. in Sydney.
The contract rose $2.17, or 1.7 percent, to $126.29 on May 16, the highest close since the futures began trading in 1983. Prices retreated from the earlier record after Saudi Arabia, the world's biggest oil exporter, said it will raise daily output to 9.45 million barrels next month after requests from customers.
The June contract expires at the end of trading tomorrow. The more-widely held July contract was at $126.10 a barrel today, having gained 1.8 percent to $126.04 on May 16.
Falling Dollar
Brent crude oil for July settlement rose $2.36, or 1.9 percent, to $124.99 a barrel on London's ICE Futures Europe exchange on May 16, a record close. The contract reached an all- time high of $126.34 earlier in the session.
New York oil futures have gained 32 percent this year on rising global demand and as the falling dollar drew investors to commodities.
West Texas Intermediate, the benchmark oil grade traded in New York, will rise to $135.30 in the third quarter and $145.60 in the fourth, Goldman said May 16.
Investors are divided as to whether the latest prices are sustainable, though more are feeling they are, Bell's Barber said. Forecasts by UBS AG, picking prices to rise to $130 a barrel in the fourth quarter and $137 in the first quarter of 2009, may be ``more realistic'' than Goldman's estimate, he said.
Further weakness in the dollar poses a real risk to the U.S. and the Federal Reserve will support it from here, Barber said.
``If they were to keep dropping rates and the U.S. dollar was to keep falling, obviously the commodities would keep going through the roof,'' he said.
There is a 90 percent probability the Federal Reserve will leave its target lending rate unchanged June 25, based on futures traded on the Chicago Board of Trade. The bank cut rates seven times in the past eight months.
A $235 billion ``bubble'' in global commodity investments may burst by yearend as uncertainty about physical supply-demand balances clear, Lehman Brother Holdings Inc. said May 16.
Prices may continue to rise in the meantime given the ``temporary self-sustaining nature of financial inflows'' New York-based Lehman analyst Edward Morse said in a report.
Editor: Haijing Qu
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