08S7A's Economics Blog
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Tuesday, May 20, 2008
posted byPenny

Oil fluctuates around $127/bbl on supply fears

LONDON (Thomson Financial) - Oil fluctuated around $127 a barrel on Tuesday, as fresh supply concerns combined with Opec's reluctance to increase output kept prices supported within touching distance of all-time record highs.

At 10:26 a.m., New York-traded West Texas Intermediate crude for June delivery -- which expires today -- was up 2 cents at $127.07 per barrel, having set an all-time high of $127.82 per barrel on Friday. Prices closed above $127 a barrel for the first time ever yesterday.

In London, Brent crude for July delivery was down 21 cents at $124.85 per barrel.

Surging diesel demand in China has heightened supply fears, as the world's second largest energy consumer moves to ensure adequate supplies for earthquake relief efforts in Sichuan province and this summer's Olympic games.

A 24-hour strike at the French port of Fos-Lavera near Marseille, Europe's second biggest oil hub, is also contributing to fears of market tightness, with oil tankers unable to enter the harbour.

Despite record prices, the Organization of Petroleum Exporting Countries (Opec) has maintained that markets remain well supplied, with the cartel's President Chakib Khelil yesterday indicating the group was unlikely to increase output at it's next meeting in September.

Bank of Ireland (nyse: IRE - news - people ) analyst, Paul Harris said that Opec's refusal to meet prior to September, maintaining the stance that record prices are a result of speculative influences and geopolitical events rather than supply shortfalls, was 'further weighing on supply concerns and adding to upward price impetus'.

While Saudi Arabia -- the cartel's dominant member -- has boosted oil output by 300,000 barrels per day to meet demand and compensate for other producers' lower output, analysts said the market appeared to be overlooking this for now as the supply picture remains unclear.

Militant action in Opec member Nigeria, Africa's largest crude producer, has kept the market on edge, with around 20 percent of its 3 million barrels per day capacity shut-in.

Weakness in the U.S. dollar has also supported prices, with commodities priced in greenbacks becoming cheaper for holders of other currencies.

Prices movements could be volatile today due to June contract expiry for WTI, analysts said, with the market's next moves possibly set by Wednesday's weekly report of U.S. fuel inventories.

(From Forbes)

4:07 AM