$50 Barrel for Oil 'A Foregone Conclusion'
Friday August 20, 4:04 am ET
By Jake Lloyd-Smith, Associated Press Writer
$50 Barrel for Oil 'A Foregone Conclusion' As Crude Strikes Another Fresh Record
SINGAPORE (AP) -- Oil prices neared the $50-per-barrel threshold Friday after striking a fresh record levels amid heightened concern about supplies in strife-torn Iraq and doubts over how much extra crude could be pumped anytime soon to ease the price surge.
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Market watchers said some investors had started to whisper about the possibility of a $60 barrel, even as they cautioned that sentiment could turn rapidly if tensions in global hotspots abated, or demand dropped as users started to economize in earnest.
"$50 (a barrel) is, I would say, a foregone conclusion," said Esa Ramasamy, editorial manager for oil in Asia at Platts, the energy market analysts. "Now the market is thinking $60, possibly."
September crude futures peaked at $48.98 a barrel in after-hours electronic trading Friday at the New York Mercantile Exchange, setting a fresh record high.
The September futures contract -- essentially a bet about where crude prices would be in that month -- was due to expire later Friday.
"The momentum of fear is running so hot now, everyone is waiting for something bad to happen," said Ng Weng Hoong, editor at EnergyAsia.com in Singapore.
Market-watchers said concern focused on the showdown in Iraq between radical cleric Muqtada al-Sadr and coalition forces in the holy city of Najaf, a confrontation that has already lasted three weeks.
The militia has repeatedly threatened to target Iraq's vulnerable oil infrastructure, especially the Gulf state's pipeline network, accentuating market fears about tight global supplies.
When asset prices rapid change, trading levels often overshoot, or swing far beyond the levels dictated by fundamentals as quickly shifting sentiment takes hold. The condition accentuates volatility, as do the activities of large hedge funds.
The showdown in Iraq is just one of a slew of factors that has driven crude prices to a series of record highs this year even as demand remains robust because of rebounding growth in major economies.
Prices are now up 57 percent in the past 12 months, although in real terms -- adjusted for inflation -- they remain about $9 a barrel lower than in the run-up to the first Gulf War in 1991.
Analysts cite the fear of more terror attacks in Saudi Arabia, the world's top producer, and the battle by Russian oil giant Yukos against bankruptcy as other factors behind the price surge.
But Ramasamy cautioned that the sight of repeated record highs is spurring major energy consumers -- both countries and companies -- to start economizing in earnest.
"At these kinds of dizzy heights, the reactions start setting in," he said, citing government-led efforts in South Korea and Thailand curb save power consumption. Both countries are oil importers.
"This will spread to other countries too," he said. "When everybody does it, it really puts demand down again."
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Greetz
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