LONDON/SINGAPORE-Oil hovered around its highest levels in more than two years yesterday, supported by cold weather across the globe, appetite for risk assets and signals from OPEC it would not arrest the rally. European benchmark ICE Brent crude for February closed 48 cents down at US$93.46 yesterday after hitting US$94.74 a barrel, its highest level since October 2008. Global benchmark US crude futures, which hit a 26-month high of US$91.63 on Thursday, did not trade yesterday with the NYMEX floor closed for the Christmas holiday.
Brent, trading at a premium to US crude, has surged partly due to a severe cold snap in continental Europe and Britain. Heavy snow stranded thousands of Christmas travellers in Europe yesterday, threatening to prolong chaos at airlines and rail networks and further boost fuel demand. Analysts said oil could continue its rally on strong global demand and falling inventories in 2011, which promises to be a strong year for risk assets as confidence about the global economic recovery picks up. The 19-commodity Reuters-Jefferies CRB index closed on Thursday at its highest level since October 2008.
"With the continuous commodity Index posting new all time highs and the S&P rising on supportive breadth, it is difficult not to maintain our bullish commodity and equity outlook heading into the first quarter of 2011," Barclays Capital said in a note.
"The latest surge has brought US$100 per barrel within range for Brent crude in particular." OPEC's most influential oil minister, Saudi Arabia's Ali al-Naimi, said yesterday he was still happy with an oil price of US$70-US$80 per barrel and there was no need for an extra OPEC meeting before the next scheduled one in June. Arab OPEC ministers are meeting in the Egyptian capital this weekend where they are expected to discuss oil production and prices, but no formal decision on output will take place.
United Arab Emirates' oil minister said he wanted OPEC to comply better with output cuts the group agreed in late 2008, and added the current price did not reflect fundamentals.
That chimed with OPEC's stance that oil demand remains fragile and speculators are to blame for the rally. Speaking in Cairo, only Iraq's new oil minister said the cartel could meet before June if market conditions changed but then added that if a decision was taken to meet it would not be "about price. It's about market conditions." "OPEC has limited its number of meetings to limit market disturbance," Abdul Kareem Luaibi told Reuters. Oil's more than 30 per cent climb from this year's low in May has revived concerns that prices could once again impact economic growth for fuel importing countries. South Korea's finance minister warned yesterday that the fifth-largest buyer of crude oil could face inflationary pressures next year.
In India, the government is expected to decide next week whether to increase state-set fuel prices to cushion domestic oil retailers. China, the world's second-biggest energy user, raised gasoline and diesel prices to record levels on Wednesday as it aimed to encourage refiners to boost supplies to meet demand. The government said it would prohibit transport companies passing the rise on to the population. But higher commodity prices helped raise Chinese consumer inflation to a 28-month high in November. (Reuters)
Analysts said oil could continue its rally on strong global demand and falling inventories in 2011, which promises to be a strong year for risk assets as confidence about the global economic recovery picks up.