OIL prices ended slightly higher yesterday as markets took a breather ahead of options trading next week that's expected to trigger a run at US$100 a barrel.
Light, sweet crude for December delivery on the New York Mercantile Exchange rose 86 cents to settle at US$96.32 a barrel, after hitting an earlier high of US$96.65.
On Thursday, the contract fell 91 cents to settle at US$95.46 after Federal Reserve Chairman Ben Bernanke said the housing slump and high oil prices, among other factors, will slow economic growth in coming months.
Options on December crude oil futures expire Tuesday, and with investors holding a heap of US$100 call options -- which allow traders to buy the underlying futures contract at a predetermined price and date -- prices could rise further.
Holders of the call options will enjoy a payout if prices hit US$100, but moderating or falling prices on Monday will send them scrambling to sell to limit their losses.
"It's going to be a prizefight next week between the bulls and the bears," said Phil Flynn, an analyst at Alaron Trading Corp in Chicago.
Estimates of where crude prices will head from here vary. Many analysts expect prices to rise to at least US$100 a barrel, but a growing chorus is warning that futures are due for a sharp downturn soon.
Few analysts believe the underlying fundamentals of supply and demand support such high prices. Many blame speculative investing fueled by the weak dollar for oil's recent run-up. Oil futures offer a hedge against a weak dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the US currency is falling.
Consumers and businesses are nearly as preoccupied with the US$100-level as traders, Flynn said. The shock value of oil's recent runup already has caused many to limit their consumption, Flynn said.
"In all my years watching the price of oil, anytime we've come up this far this fast, it's always caused demand to slow down," he said.
Crude prices are within the range of inflation-adjusted highs set in early 1980, however. Depending on how the adjustment is calculated, US$38 a barrel then would be worth US$96 to US$103 or more today.
In London, Brent crude rose 39 cents to settle at US$93.18 a barrel on the ICE Futures exchange.
News of two shutdowns in the North Sea exacerbated supply worries earlier in the session. But oil companies operating in the region said yesterday that they had begun restarting shut-in output totaling at least 330,000 barrels of oil equivalent a day.
Energy investors worry that any slowdown in the US or global economy will crimp demand for oil and gasoline. The US is the world's largest user of oil, accounting for about a quarter of daily petroleum consumption.
In the heating oil and natural gas markets, traders were excited about forecasts for temperatures to cool to more seasonal levels over the next couple of weeks, Evans said.
Heating oil futures rose 1.3 cent to US$2.6188 a gallon on the Nymex, while natural gas futures rose 18.4 cents to US$7.897 per 1,000 cubic feet.
Gasoline prices climbed 1.84 cent to US$2.4560 a gallon.
That beat the April 30 settlement of US$2.4405, a record since the previous unleaded gasoline contract was ended at the start of the year. Prices are still off all-time records for any front-month gasoline, though. |
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