MARKET WATCH: Crude hits new high; $200/bbl predicted

Sam Fletcher
Senior Writer

HOUSTON, May 6 -- Crude futures prices hit an intraday high May 5 in the New York market as traders worried about the falling US dollar and supply disruptions in a tight market.

Prices continued climbing in early trading May 6 after Goldman Sachs Group Inc., the world's largest securities firm, predicted crude costs could escalate to $150-200/bbl within 2 years. The front-month price for benchmark US crudes soared past $120/bbl in intraday trading May 5 from $62/bbl a year ago, indicating a continuing super spike in crude futures market, said Goldman Sachs analyst Arjun Murti.

He headed a Goldman Sachs team that in 1985 predicted a super spike of crude prices to $50-105/bbl at some point within a few years because of continued unexpected strength in world oil demand and economic growth, especially in the US and China. The group also said at that time that retail gasoline prices could hit $4/gal during the multiyear "spike" period until high prices force a reduction in oil consumption. Oil was then trading at a record level of $58/bbl (OGJ Online, Apr. 5, 2005). Late last year, Goldman Sachs raised its 2008 oil price prediction to $95/bbl from $85/bbl for benchmark US crude and predicted crude might hit $105/bbl before 2009 (OGJ Online, Dec. 17, 2007).

"The market-making strength of Goldman Sachs in the oil futures market is something to be never fully discounted," said Olivier Jakob at Petromatrix, Zug, Switzerland.

The recent rally in oil futures prices has been so extreme (up $10/bbl since May 1) that "momentum indicators are hard to define as it took 2 days to do what previously took 10 days," said Jakob. Energy prices rebounded May 2 and May 5 from a brief but sharp decline in the middle of last week. The front-month benchmark crude has broken $120/bbl in intraday trading but still needs to confirm that new mark by closing above $120/bbl, said Jakob. There is no clear resistance level above $120/bbl before $125/bbl," he said.

"Energy stocks advanced yesterday, as both crude oil and natural gas [futures prices] increased. Crude eclipsed the $120/bbl mark on concerns of supply disruption and signs of increased US demand. A report yesterday showed that US service industries increased in April, signaling higher energy use," said analysts in the Houston office of Raymond James & Associates Inc.

Meanwhile, Royal Dutch Shell PLC confirmed May 6 that a May 2 attack on a flow station in southern Nigeria forced the company to reduce exports by 170,000 b/d (OGJ Online, May 5, 2008).

Energy prices
The June contract for benchmark US sweet, light crudes hit an intraday high of $120.36/bbl before closing at $119.97/bbl, up $3.65 for the day on the New York Mercantile Exchange. The July contract gained $3.68 to $119.47/bbl. On the US spot market, West Texas Intermediate was up $3.65 to $119.97/bbl. Heating oil for June delivery advanced 8.78¢ to $3.31/gal on NYMEX. The June contract for reformulated blend stock for oxygenate blending (RBOB) increased by 8.65¢ to $3.05/gal.

The June natural gas contract shot up 40.1¢ to $11.18/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated by 39.5¢ to $10.88/MMbtu.

In London, the June IPE contract for North Sea Brent crude gained $3.43 to $117.99/bbl. The May gas oil contract jumped up $23 to $1,099.50/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 13 reference crudes increased by $4.61 to $111.50/bbl.

Contact Sam Fletcher at samf@ogjonline.com