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2008-01-02 19:59:09
Oil has traded at $100 a barrel for the first time.
Violence in Nigeria, Algeria and Pakistan, the weak US dollar and the threat of
cold weather have all raised prices after the new year break.
Light sweet crude rose $4.02 to $100 a barrel in New York, prompting a drop in
shares and a surge in gold prices.
There are concerns that the high price of oil will stoke inflation at a time
when many central banks are trying to cut interest rates to stimulate growth.
US shares had already been hit on Wednesday by figures showing that the
manufacturing sector was contracting.
$100 is just the beginning
Zachary Oxman,
Wisdom Financial
After oil broke the $100 barrel they fell further, with the Dow Jones trading
215.1 points, or 1.6%, lower at 13,049.73.
"All of the factors that pushed us above $80 are now moving us higher," said
Peter Beutel at Cameron Hanover in Connecticut.
"Until we get more supply or demand starts to take a hit, there is no reason we
can't see any number."
'Frivolous'
But some analysts played down the relevance of passing the $100 mark.
"The entire focus on $100 oil is frivolous," said Tim Evans at Citigroup
Futures Research in New York.
"It is not a magic number. It doesn't suddenly make this a fundamentally strong
market."
Trading volumes were about half of their usual levels as traders returned from
their new year breaks, which may have exaggerated the effect of speculative
transactions, analysts said.
"I would imagine the speculators are the biggest drivers today," said Phil
Flynn from Alaron Trading in Chicago.
The oil-producers' cartel Opec has also blamed speculators for the high price
of crude and said that there is plenty of the fuel in the market to meet
demand.
President Bush has said he will not be drawing on the US Strategic Petroleum
Reserve (SPR) to try to bring down prices.
"This president will not use the SPR to manipulate (oil prices)," White House
spokeswoman Dana Perino said.
"Doing a temporary release of the SPR is not going to change prices very much."
Moving on up?
There are those who believe that oil prices can rise significantly higher.
While daily price rises have been blamed on unrest in oil-supplying countries
such as Nigeria, a underlying and significant factor has been an increase in
demand from China and India.
"$100 is just the beginning," said Zachary Oxman, senior trader at Wisdom
Financial in California.
"This is kicking off what you are going to see this year. There will be huge
moves up in gold and huge moves up in crude."