Oil hits high above $135
Oil galloped to a high above $135 on Thursday, extending this month's near 20% rally after a sharp drop in US crude stocks and the weakening US dollar triggered short covering by investors.
The climb in prices, which have marked new record highs in 10 of their last 14 sessions, has set off alarm bells around the world, although Opec has maintained that the market remains well supplied with crude and that prices are beyond its control.
The US July crude contract extended Wednesday's more than $4 surge to reach a high of $135.04 early on Thursday. By 0333 GMT it was trading up $1.41 or 1% at $134.58 a barrel, taking gains so far this year to over 40%.
"Prices are going in one direction. They are up all the way," said Gerard Rigby of Fuel First Consulting in Sydney. "The primary mover is the fall in the US oil stocks, and this started a series of short covering."
US crude stocks fell 5.4 million barrels to 320.4 million barrels last week, counter to expectations of a small rise in inventories, intensifying concerns about supplies in the world's biggest consumer just ahead of the start of summer.
The drop was caused by a fall in imports to their lowest in five weeks and a pick-up in demand from refineries, the Energy Information Administration said.
US gasoline supplies fell 800,000 barrels against a 700,000-barrel build forecast, while stocks of distillates - which has been one of the market's biggest driver this month - rose 700,000 barrels but were 12% below last year.
Heating oil for June delivery reached a fresh record high of $3.9704 a gallon on Thursday, having climbed nearly 25% since the start of this month.
"All the focus is on bullish factors. You simply have to follow the trend and buy now," said Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo.
"You really cannot forecast how much further the market will rally now. All I can say is the market will continue to rise," Kageyama said.
Signals from China, the world's second-biggest consumer, were mixed, with April implied oil demand rising by only 3.7% as refiners cut back domestic runs and imported diesel and gasoline instead, taking advantage of a tax break.
While the shift has curbed demand for imported crude, it has driven fuel imports to record highs as firms start to stockpile ahead of the Olympics.
FUNDS BUYING
Several analysts said the latest step higher in prices had come after companies or traders who sold the market short scrambled to buy back their positions.
Forward oil prices out to 2015 have risen even more than prompt front-month prices since the start of the year.
"The surge in long-dated futures...seems to betray financial distress: that of hedged producers facing rising margin calls and trying to get out of their short positions, only to find themselves squeezed," said Newedge analyst Antoine Halff.
Recent bearishness towards the dollar added momentum to the oil market. The US dollar was pinned at one-month lows against the euro after the Federal Reserve cut its 2008 growth forecasts.
In minutes released on Wednesday, the Fed also said it was concerned about inflation, indicating it was unlikely to cut rates further.
The market has been convinced to buy oil amid a series of bullish forecasts, while the outlook for the dollar is weak.
Investment bank Goldman Sachs has said it thinks oil prices will average $141 a barrel in the second half of this year and could top $200 a barrel by 2010.
US investor Warren Buffett, the world's richest person, said on Wednesday he expects the dollar to keep falling as policies needed to correct the slide had yet to be implemented.
US Energy Secretary Sam Bodman said record oil prices fairly reflect tight supplies and strong global oil demand, and speculators were not at fault for pushing up petroleum costs.
The climb in prices, which have marked new record highs in 10 of their last 14 sessions, has set off alarm bells around the world, although Opec has maintained that the market remains well supplied with crude and that prices are beyond its control.
The US July crude contract extended Wednesday's more than $4 surge to reach a high of $135.04 early on Thursday. By 0333 GMT it was trading up $1.41 or 1% at $134.58 a barrel, taking gains so far this year to over 40%.
"Prices are going in one direction. They are up all the way," said Gerard Rigby of Fuel First Consulting in Sydney. "The primary mover is the fall in the US oil stocks, and this started a series of short covering."
US crude stocks fell 5.4 million barrels to 320.4 million barrels last week, counter to expectations of a small rise in inventories, intensifying concerns about supplies in the world's biggest consumer just ahead of the start of summer.
The drop was caused by a fall in imports to their lowest in five weeks and a pick-up in demand from refineries, the Energy Information Administration said.
US gasoline supplies fell 800,000 barrels against a 700,000-barrel build forecast, while stocks of distillates - which has been one of the market's biggest driver this month - rose 700,000 barrels but were 12% below last year.
Heating oil for June delivery reached a fresh record high of $3.9704 a gallon on Thursday, having climbed nearly 25% since the start of this month.
"All the focus is on bullish factors. You simply have to follow the trend and buy now," said Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo.
"You really cannot forecast how much further the market will rally now. All I can say is the market will continue to rise," Kageyama said.
Signals from China, the world's second-biggest consumer, were mixed, with April implied oil demand rising by only 3.7% as refiners cut back domestic runs and imported diesel and gasoline instead, taking advantage of a tax break.
While the shift has curbed demand for imported crude, it has driven fuel imports to record highs as firms start to stockpile ahead of the Olympics.
FUNDS BUYING
Several analysts said the latest step higher in prices had come after companies or traders who sold the market short scrambled to buy back their positions.
Forward oil prices out to 2015 have risen even more than prompt front-month prices since the start of the year.
"The surge in long-dated futures...seems to betray financial distress: that of hedged producers facing rising margin calls and trying to get out of their short positions, only to find themselves squeezed," said Newedge analyst Antoine Halff.
Recent bearishness towards the dollar added momentum to the oil market. The US dollar was pinned at one-month lows against the euro after the Federal Reserve cut its 2008 growth forecasts.
In minutes released on Wednesday, the Fed also said it was concerned about inflation, indicating it was unlikely to cut rates further.
The market has been convinced to buy oil amid a series of bullish forecasts, while the outlook for the dollar is weak.
Investment bank Goldman Sachs has said it thinks oil prices will average $141 a barrel in the second half of this year and could top $200 a barrel by 2010.
US investor Warren Buffett, the world's richest person, said on Wednesday he expects the dollar to keep falling as policies needed to correct the slide had yet to be implemented.
US Energy Secretary Sam Bodman said record oil prices fairly reflect tight supplies and strong global oil demand, and speculators were not at fault for pushing up petroleum costs.
/Reuters/
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