Published on ShanghaiDaily.com (http://www.shanghaidaily.com/)
http://www.shanghaidaily.com/sp/article/2008/200806/20080621/article_364067.htm
Oil prices rise, doubts about China pricing action
Created: 2008-6-21 9:33:00
OIL futures rebounded yesterday on unease over Middle East stability and a growing doubt that China's government will be able to curb the country's appetite for fuel by pushing prices higher.
Light, sweet crude for July delivery rose US$2.69 to settle at US$134.62 a barrel on the New York Mercantile Exchange, recovering some of the US$4.75 that the contract lost Thursday after China announced it was raising fuel prices. Crude prices ended the week largely unchanged, falling only 24 cents from last Friday's close despite reaching a new trading record of US$139.89 on Monday.
The July crude oil contract expired at the end of trading Friday. Trading was much heavier in the August crude contract, which rose US$2.76 to settle at US$135.36 a barrel.
In London, August Brent crude rose US$2.86 to settle at US$134.86 a barrel on the ICE Futures Exchange.
While Thursday's news from China helped to reduce investor concerns about surging global demand for oil and fuel, Friday's news from the Middle East injected fresh supply worries into the market.
Pentagon officials said a large scale Israeli military exercise in the eastern Mediterranean early this month could have been a demonstration of Jerusalem's ability to attack Iranian nuclear facilities.
Analysts suggested Thursday's drop in prices and Friday's gains were overreactions.
"Whenever you get Israel and Iran within the same sentence, you have a price reaction," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois.
But price moves based on the possibility of conflict between the two nations are likely to be short-lived, analysts believe. An actual attack would be a different matter entirely, and could send prices sharply higher.
Meanwhile, several analysts said China's fuel price hike could actually increase the nation's crude demand. Many Chinese refiners have resisted producing fuel in recent months as the retail prices they're allowed to charge were not high enough to cover the costs of their main raw ingredient, crude oil. Now that they can charge more for fuel, Chinese refiners may actually produce more diesel and gasoline, using more crude oil in the process.
"The increase in prices can be seen ... as an attempt to reduce shortages through encouraging domestic supply," said Barclays Capital analyst Kevin Norrish in a research note. "Indeed, it could well be that case that effective demand actually rises, dependent on the current level of shortages."
Some analysts also questioned whether the modest price hikes were enough to dampen demand.
"It remains uncertain whether this fuel price hike in China will really significantly impact demand growth in China in a negative way," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "This (was) a knee-jerk overreaction by the market."
Also supporting prices Friday was Royal Dutch Shell PLC's declaration that it can't meet contractual obligations to export oil from a Nigerian oil field following a militant attack Thursday, and reports that Nigerian oil workers have decided to strike at a Chevron Corp. facility beginning Monday. Both moves were seen as likely to further cut oil supplies from Africa's largest producer.
On another front, investors were awaiting the outcome of a weekend summit in Saudi Arabia between oil consuming and producing nations to discuss high oil prices.
The dollar fell against the euro Friday, putting more upward pressure on oil prices. Many investors buy commodities such as oil as a hedge against inflation when the greenback weakens. A falling dollar makes oil less expensive to investors overseas.
In other Nymex trading Friday, July natural gas futures rose 13.3 cents to settle at US$12.994 per 1,000 cubic feet.
Light, sweet crude for July delivery rose US$2.69 to settle at US$134.62 a barrel on the New York Mercantile Exchange, recovering some of the US$4.75 that the contract lost Thursday after China announced it was raising fuel prices. Crude prices ended the week largely unchanged, falling only 24 cents from last Friday's close despite reaching a new trading record of US$139.89 on Monday.
The July crude oil contract expired at the end of trading Friday. Trading was much heavier in the August crude contract, which rose US$2.76 to settle at US$135.36 a barrel.
In London, August Brent crude rose US$2.86 to settle at US$134.86 a barrel on the ICE Futures Exchange.
While Thursday's news from China helped to reduce investor concerns about surging global demand for oil and fuel, Friday's news from the Middle East injected fresh supply worries into the market.
Pentagon officials said a large scale Israeli military exercise in the eastern Mediterranean early this month could have been a demonstration of Jerusalem's ability to attack Iranian nuclear facilities.
Analysts suggested Thursday's drop in prices and Friday's gains were overreactions.
"Whenever you get Israel and Iran within the same sentence, you have a price reaction," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois.
But price moves based on the possibility of conflict between the two nations are likely to be short-lived, analysts believe. An actual attack would be a different matter entirely, and could send prices sharply higher.
Meanwhile, several analysts said China's fuel price hike could actually increase the nation's crude demand. Many Chinese refiners have resisted producing fuel in recent months as the retail prices they're allowed to charge were not high enough to cover the costs of their main raw ingredient, crude oil. Now that they can charge more for fuel, Chinese refiners may actually produce more diesel and gasoline, using more crude oil in the process.
"The increase in prices can be seen ... as an attempt to reduce shortages through encouraging domestic supply," said Barclays Capital analyst Kevin Norrish in a research note. "Indeed, it could well be that case that effective demand actually rises, dependent on the current level of shortages."
Some analysts also questioned whether the modest price hikes were enough to dampen demand.
"It remains uncertain whether this fuel price hike in China will really significantly impact demand growth in China in a negative way," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "This (was) a knee-jerk overreaction by the market."
Also supporting prices Friday was Royal Dutch Shell PLC's declaration that it can't meet contractual obligations to export oil from a Nigerian oil field following a militant attack Thursday, and reports that Nigerian oil workers have decided to strike at a Chevron Corp. facility beginning Monday. Both moves were seen as likely to further cut oil supplies from Africa's largest producer.
On another front, investors were awaiting the outcome of a weekend summit in Saudi Arabia between oil consuming and producing nations to discuss high oil prices.
The dollar fell against the euro Friday, putting more upward pressure on oil prices. Many investors buy commodities such as oil as a hedge against inflation when the greenback weakens. A falling dollar makes oil less expensive to investors overseas.
In other Nymex trading Friday, July natural gas futures rose 13.3 cents to settle at US$12.994 per 1,000 cubic feet.
Agencies
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