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Oil prices were slightly lower Friday, after jumping to a
trading record near US$106 a barrel in the previous session as the
dollar's slide to new lows prompted investors to pump more money into
commodities.
Light, sweet crude for April delivery fell 32 cents to US$105.15 a
barrel in electronic trading on the New York Mercantile Exchange by
midday in Europe.
The contract rose 95 cents Thursday to settle at a record US$105.47 a
barrel after earlier spiking to a trading record of US$105.97.
In London, Brent crude futures lost 64 cents to US$101.64 a barrel on
the ICE Futures exchange.
Analysts believe the steadily weakening dollar is the reason oil prices
have jumped to a number of new inflation-adjusted record highs this
week. Crude futures offer a hedge against a falling dollar, and oil
futures bought and sold in dollars are more attractive to foreign
investors when the dollar is falling.
On Friday, the dollar hit another record low against the euro, with the
European currency rising above US$1.54 for the first time since its
2002 launch.
"There are expectations that the dollar will go lower, and that's
driving money into commodities," said Victor Shum, an energy analyst
with Purvin & Gertz in Singapore. "Traders now have this mantra:
sell the dollar and buy oil, or buy commodities."
Analyst estimates for where oil goes from here vary widely. Some
predict an eventual decline to the US$65 or US$70 range as supplies
continue to grow and demand falls. Others see prices rising as high as
US$120 as investment capital continues to flow into oil.
"We have the speculative funds and investors betting that oil pricing
will strengthen. On the other hand, we have the commercial players, who
actually ship and use the oil, betting that prices will decline," Shum
said.
Shum said market fundamentals, which have shown increases in crude
inventories amid softening demand, do not justify the current price
surge, and warned of a sharp correction.
"The strength in oil pricing smells of a bubble ... the oil market
might be primed for a pullback," he said. "At some point, some event
will trigger financial players to exit oil as fast as they've got into
oil."
Others said the continuing weakness of the U.S. dollar trumped all
fundamental factors in determining oil prices and would have overridden
even an output increase by OPEC, which had been called for by, among
others, the United States and Japan.
The Schork Report, edited by analyst Stephen Schork, explained that
while U.S. crude oil stocks had risen 4.3 percent since January, during
the same period the dollar had fallen by 5.1 percent against a basket
of world currencies.
"Thus, as long as the weakness of the greenback continues to grab the
headlines, speculators will continue to shrug off the supply
situation," the report said.
"If the U.S. Administration was really concerned about the rise in oil,
then its efforts would be better spent publicly defending the dollar
rather than chastising OPEC," Schork said.
The Organization of Petroleum Exporting Countries decided Wednesday to
keep output levels steady, saying crude supplies were plentiful and
demand was expected to weaken in the second quarter.
Also supporting prices was a rebel attack on a Colombian oil pipeline
that transports 60,000 barrels of oil a day for export markets.
The attack came Thursday as traders worried about escalating tensions
between Colombia and Venezuela over Colombia's raid into Ecuador.
Venezuela threatened to slash trade and nationalize Colombian-owned
businesses. Venezuela and Ecuador have sent troops to their borders
with Colombia.
All three countries involved in the crisis are oil producers, with
Venezuela ranking as one of the world's top oil producers and a major
supplier to the United States.
Heating oil futures slipped 2.78 cents to US$2.9455 a gallon (3.8
liters) while gasoline prices lost 0.32 cent to US$2.6500 a gallon.
Natural gas futures rose 2.3 cents to US$9.765 per 1,000 cubic feet.
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