Oil hits new record above $92
by Janet McBride and Jane Merriman
Oil rallied to a record high above $92 a barrel on Friday as the
dollar tumbled to a record low, Washington imposed new sanctions on Iran
and gunmen shut more oil production in Nigeria.
The administration of U.S. President George W. Bush said oil prices
are "way too high." The world's top consumer of oil has been calling on
OPEC to further hike production to cool the red hot market, which
threatens to undermine economic growth. U.S. crude was up 45 cents at
$90.91 a barrel by 1:10 p.m. EDT (1710 GMT), off a record $92.22 hit
during the session.
It is closing in on its inflation-adjusted high of $101.70 seen over
the course of April 1980, a year after the Iranian revolution and at the
start of the Iran-Iraq war. London Brent was up 45 cents at $87.93.
Oil's bullish momentum has pulled in piles of speculative investment
and triggered waves of technical buying. Institutional money has flooded
into oil and other commodities since the U.S. Federal Reserve cut
interest rates in August.
"It's more or less nobody wants to be short in this market," said
Markus Mezger, who manages investment portfolios at commodities hedge
fund Tiberius.
Adding support, the United States on Thursday placed new sanctions on
Iran, the world's fourth-biggest oil exporter, and accused its
Revolutionary Guard of spreading weapons of mass destruction. Iran is at
odds with the United Nations over its nuclear program.
Weak dollar
An attack on a Nigerian oil rig operated by Italian firm ENI shut
50,000 barrels per day of production and reminded investors that
Africa's biggest producer is a long way from restoring order and normal
output in the oil-rich delta.
Unprecedented weakness in the dollar has been another factor driving
prices of dollar-denominated commodities higher.
In anticipation that the U.S. Federal Reserve may cut interest rates
next week, the dollar hit record lows against the euro and a basket of
currencies Friday.
While U.S. oil has surged 50 per cent since the start of the year,
the price rise in euros is 38 per cent.
Analysts said investor positions in U.S. crude options suggested
traders were betting on further rises. A wave of call, or buy, options
kicked in Thursday as U.S. oil broke $90.
"The next big layer of call open interest is sitting on the $100 a
barrel strike and this will become the next target if current dynamics
allow U.S. crude to rise above $95," said Olivier Jakob of Swiss-based
Petromatrix.
In his view, prices are being driven by option dynamics and supported
by U.S. policy toward Iran. In an edgy market, bullish headlines were
being over-amplified, he reasoned.
Higher prices so far have had a limited impact on economic growth and
demand but investors are alert to signs the U.S. housing slump is
spilling over into the broader economy.
There are some indications of a slowdown in China's demand growth,
another big driver of oil's rally. The gap between world prices and low
state-set Chinese prices have pushed refiners to cut runs, leading to
some diesel pumps running dry in the southwest of the country.
China's apparent oil demand grew at the slowest rate in 20 months in
September, up just 0.3 percent from a year earlier.
LONDON, Reuters |