Crude prices hit fresh highs again on Thursday, with the Organisation of the Petroleum Exporting Countries seemingly able to do nothing to stem the tide of fund
Some market observers pointed out that the oil cartel’s decision at its meeting in Iran this week to raise output by 500,000 barrels a day might actually be fuelling the latest spike in prices, which began on Wednesday and culminated on Thursday in Nymex WTI peaking at $57.50 a barrel.
Normally at this time of year, Opec would be looking to rein in production to prevent oversupply and rapid price falls during the seasonal slump in demand that comes between winter heating fuel needs and the petrol-driven summer holiday period.
“Opec made its mistake by lowering quotas in December when it looked like crude was going to drop below $40 a barrel,” said Phil Flynn, vice-president and energy analyst at Alaron Trading in Chicago. “If you misjudge demand, you lose control on the upside. Opec is great at keeping prices from falling too steeply, but miserable at stopping them rising,” he added.
After decreases in US reserves of both distillates and petrol, reported on Wednesday, crude prices began the latest push higher with Nymex WTI pushing through $57 a barrel on Thursday, having breached $56 in the previous session.
And as the market becomes further driven by developments in the US petrol market, Opec’s role in controlling prices will become less influential. The cartel’s heavy sour grades of crude yield less than the light sweet varieties.
“Yesterday’s bigger-than-expected inventory decline and strong implied demand suggests that this market has the potential to get a lot tighter,” said Kevin Norrish, energy strategist at Barclays Capital, which became the latest bank to raise its price forecasts on crude futures.
The bank added 30 per cent to its previous estimate for Nymex crude in 2006 to $50.30 a barrel. So far this year the price has averaged $49.16 a barrel, up from its 2004 average of $41.47.
By close of trade in New York, Nymex WTI for April delivery was down 6 cents on the previous session at $56.40 a barrel. Brent crude, which started trading on the May contract yesterday, was up 18 cents at $55.06 a barrel, having earlier hit an all-time high of $55.86.
Among the precious metals, only platinum defied slowing fund interest and a strengthening of the dollar to move to an 11-month high yesterday. Prompted by covering of short positions, the white metal edged back up to $885 an ounce before easing back to $876 by midday in New York. Gold fell $4.25 to $439.05 an ounce.