Oil sinks to US$115 per barrel as USD strengthens
published:
Sunday | August 10, 2008
Oil prices dove to US$115 a barrel on Friday, driven lower by a huge jump in the United States dollar, signs of moderating fuel demand around the world and the growing belief in the markets that commodities may have peaked.
Shrugging off concerns about a sabotaged oil pipeline in Turkey, investors pulled their money out of commodities and put it back into stocks - driving the Dow Jones industrial average up more than 300 points.
CRUDE SLUMP
Light, sweet crude for September delivery slumped US$4.82 to settle at US$115.20 a barrel on the New York Mercantile Exchange.
During trading, it dipped as low as US$114.90. Prices for gasolene, heating oil and natural gas also dropped.
Many analysts have pointed to the US$117-a-barrel mark for crude oil as technically significant - a move below this level suggests, they say, that oil's recent slide is more than a brief pullback. Crude peaked at US$147.27 on July 11.
"You have to remember that this market has baffled anyone who's used fundamentals or charts. But if you're a chartist, today is the death knell for the possibility of new highs in the marketplace," said Tom Kloza, publisher and chief oil analyst of the Oil Price Information Service in Wall, New Jersey.
massive rebound
With the dollar launching a massive rebound against the euro and yen after the European Central Bank (ECB) and the Bank of England both left their benchmark interest rates unchanged, energy traders found reason to sell - especially since the ECB indicated that there probably wouldn't be any more rate hikes to come.
Higher interest rates make a country's currency more attractive to invest in.
By the energy market's close, the euro had dropped to $1.5007 against the dollar, while the dollar rose to 110.22 yen.
The British pound tumbled to $1.9193, after reaching its lowest point since November 2006.
The weak dollar had been boosting oil prices earlier this year, because dollar-denominated commodities are often used as hedges against inflation and a falling US currency.
Furthermore, the central banks' actions bolstered the growing belief in the energy markets that economies around the world are slowing alongside the United States, dampening global demand for crude-oil products.
"The biggest driving factor now to the downside is the fact that the US economy has a lot of company right now in terms of weakening economic growth," Cordier said, pointing to both China and India.
Clean-air efforts have had a dampening effect too - China announced in June that Beijing would remove half its cars from the roads.
Nymex front-month crude futures are down nearly 22 per cent from their record high. They are still up, however, nearly 60 per cent from a year ago.
slowing demand
Earlier this year, Americans were paying about $1.65 billion a day for gasolene at the peak of prices and demand, Kloza said. The country appears to be headed for below $1.5 billion a day now that prices are coming down and demand is slowing, he said, but he pointed out that that is still three times what Americans were paying in 2002.
Heating oil futures fell 10.56 cents to finish at $3.1280 a gallon on the Nymex, where gasoline futures fell 11.53 cents to close at $2.8874 a gallon. Natural gas futures fell 32.3 cents to settle at $8.248 per 1,000 cubic feet.
Crude oil had risen $1.14 Thursday to close at $120.02 a barrel after Turkey's state-run news agency Anatolia said the pipeline, attacked by the separatist group Kurdistan Workers' Party, could be shut down for up to 15 days.
The pipeline can pump slightly more than one million barrels of crude oil per day, or more than one per cent of the world's daily crude output. In Turkey, pipeline shareholder BP PLC and other oil companies declared what is called a force majeure after the pipeline attack, freeing them of contractual obligations to deliver crude.
