Oil Rises Above $71 as Investors Return to Commodity Markets
May 23 -- Crude oil rose above $71 a barrel on speculation that last week's drop in energy and metals prices was larger than justified given global economic growth.
``The overall commodity selloff was overdone,'' said John Kilduff, vice president of risk management at Fimat USA in New York. ``The big declines early yesterday brought in bargain hunters to both oil and metals. Specifically related to energy, yesterday's hurricane report reminds all of us of the dangers that are out there.''
Oil fell 4.9 percent last week on concern that higher raw material prices would raise inflation, leading central banks to boost interest rates. Commodity demand has surged because of economic growth in China and India. Oil also gained on a U.S. report yesterday that forecast as many as six major storms will form in the Atlantic Ocean during this year's hurricane season.
Crude oil for July delivery rose $1.80, or 2.6 percent, to $71.76 a barrel on the New York Mercantile Exchange, the biggest gain since March 28. Futures reached $75.35 on April 21 and 24, the highest since trading began in 1983. Prices are up 46 percent from a year ago.
``A bunch of commodities are moving higher in tandem,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``If crude oil closes above $71.50 we will start looking for higher targets in the $73 area.''
Copper climbed more than 10 percent, its largest-ever gain, silver rose the most in two weeks and gold gained for the first session in five.
The Reuters/Jefferies CRB Futures Price Index, a gauge of 19 commodities, rose for a second day, gaining 2.4 percent. Last week, it posted the biggest weekly drop since 1980, while raw- materials and energy companies had the largest declines among 10 groups in the S&P 500. The rally in commodity prices pushed energy and mining shares higher today.
Strong Economic Growth
``There is very strong economic growth globally,'' said Jason Schenker, an economist at Wachovia Corp. in Charlotte, North Carolina. ``Growth in Japan, the euro zone and U.K. will be stronger this year than in 2005.''
Japan, the world's third-largest oil importer, is heading toward its longest postwar expansion. Japan's economic growth will be the longest since 1945 if it continues through November, surpassing the so-called Izanagi boom of 1965 to 1970, a 57-month expansion named after a Japanese god.
China Fuel Prices
China, the world's second-biggest oil consumer, said it will allow fuel prices to rise, helping refiners to meet costs after crude oil reached records. From today, prices for gasoline, diesel and jet fuels were all increased by 500 yuan ($62.31) a metric ton, the National Development and Reform Commission, the nation's top economic planner, said in a statement today.
The move boosts gasoline prices by 10.6 percent, diesel prices by 12.3 percent and jet fuel by 10.3 percent.
``The news from China should be bearish but the market's shrugging it off,'' Kilduff said. ``Rising prices may reduce demand. Chinese growth has been a major factor in the upward movement of the market.''
The Atlantic hurricane season runs from June through November. About 22 percent of U.S. oil production in the Gulf of Mexico remained shut earlier this month because of hurricanes that passed through the region last year, according to the government.
Iran's Nuclear Program
Oil has risen about 18 percent this year amid concern supplies would be disrupted from Iran, the world's fourth-largest producer. The United Nations Security Council will discuss tomorrow a plan to stop Iran from enriching uranium, a step toward making nuclear bombs, the U.S. said. Iran says it only wants nuclear energy for electricity production.
``We think that prices on a supply and demand basis are likely to cool down somewhat in the second half of the year,'' said Adam Sieminski, chief energy economist at Deutsche Bank Securities AG in New York. ``The problem is that at any particular moment, we could have very bad news on these geopolitical issues or the weather problems associated with hot weather or hurricanes.''
Brent crude oil for July settlement rose $1.65, or 2.4 percent, to close at $71 a barrel on the London-based ICE Futures exchange.
Gasoline prices also moved higher because a fire reduced fuel output at a Valero Energy Corp. refinery. The St. Charles, Louisiana, facility cut daily gasoline output by 25,000 barrels following the May 20 fire. Low-sulfur diesel production at the plant was shut completely, the company said. St. Charles typically produces about 55,000 barrels of diesel a day.
Gasoline for June delivery rose 5.06 cents, or 2.5 percent, to close at $2.108 a gallon in New York. Prices are up 51 percent from a year ago.
U.S. gasoline supplies probably rose for a fourth straight week as refineries prepare for summer, a Bloomberg News survey indicated. Stockpiles rose by 1.3 million barrels last week, up from 206.4 million the week before, according to the median forecast by 16 analysts. Crude oil inventories probably fell 1 million barrels from 346.9 million.
The Energy Department releases its weekly report on petroleum inventories tomorrow at 10:30 a.m. in Washington.
May 23 -- Crude oil rose above $71 a barrel on speculation that last week's drop in energy and metals prices was larger than justified given global economic growth.
``The overall commodity selloff was overdone,'' said John Kilduff, vice president of risk management at Fimat USA in New York. ``The big declines early yesterday brought in bargain hunters to both oil and metals. Specifically related to energy, yesterday's hurricane report reminds all of us of the dangers that are out there.''
Oil fell 4.9 percent last week on concern that higher raw material prices would raise inflation, leading central banks to boost interest rates. Commodity demand has surged because of economic growth in China and India. Oil also gained on a U.S. report yesterday that forecast as many as six major storms will form in the Atlantic Ocean during this year's hurricane season.
Crude oil for July delivery rose $1.80, or 2.6 percent, to $71.76 a barrel on the New York Mercantile Exchange, the biggest gain since March 28. Futures reached $75.35 on April 21 and 24, the highest since trading began in 1983. Prices are up 46 percent from a year ago.
``A bunch of commodities are moving higher in tandem,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``If crude oil closes above $71.50 we will start looking for higher targets in the $73 area.''
Copper climbed more than 10 percent, its largest-ever gain, silver rose the most in two weeks and gold gained for the first session in five.
The Reuters/Jefferies CRB Futures Price Index, a gauge of 19 commodities, rose for a second day, gaining 2.4 percent. Last week, it posted the biggest weekly drop since 1980, while raw- materials and energy companies had the largest declines among 10 groups in the S&P 500. The rally in commodity prices pushed energy and mining shares higher today.
Strong Economic Growth
``There is very strong economic growth globally,'' said Jason Schenker, an economist at Wachovia Corp. in Charlotte, North Carolina. ``Growth in Japan, the euro zone and U.K. will be stronger this year than in 2005.''
Japan, the world's third-largest oil importer, is heading toward its longest postwar expansion. Japan's economic growth will be the longest since 1945 if it continues through November, surpassing the so-called Izanagi boom of 1965 to 1970, a 57-month expansion named after a Japanese god.
China Fuel Prices
China, the world's second-biggest oil consumer, said it will allow fuel prices to rise, helping refiners to meet costs after crude oil reached records. From today, prices for gasoline, diesel and jet fuels were all increased by 500 yuan ($62.31) a metric ton, the National Development and Reform Commission, the nation's top economic planner, said in a statement today.
The move boosts gasoline prices by 10.6 percent, diesel prices by 12.3 percent and jet fuel by 10.3 percent.
``The news from China should be bearish but the market's shrugging it off,'' Kilduff said. ``Rising prices may reduce demand. Chinese growth has been a major factor in the upward movement of the market.''
The Atlantic hurricane season runs from June through November. About 22 percent of U.S. oil production in the Gulf of Mexico remained shut earlier this month because of hurricanes that passed through the region last year, according to the government.
Iran's Nuclear Program
Oil has risen about 18 percent this year amid concern supplies would be disrupted from Iran, the world's fourth-largest producer. The United Nations Security Council will discuss tomorrow a plan to stop Iran from enriching uranium, a step toward making nuclear bombs, the U.S. said. Iran says it only wants nuclear energy for electricity production.
``We think that prices on a supply and demand basis are likely to cool down somewhat in the second half of the year,'' said Adam Sieminski, chief energy economist at Deutsche Bank Securities AG in New York. ``The problem is that at any particular moment, we could have very bad news on these geopolitical issues or the weather problems associated with hot weather or hurricanes.''
Brent crude oil for July settlement rose $1.65, or 2.4 percent, to close at $71 a barrel on the London-based ICE Futures exchange.
Gasoline prices also moved higher because a fire reduced fuel output at a Valero Energy Corp. refinery. The St. Charles, Louisiana, facility cut daily gasoline output by 25,000 barrels following the May 20 fire. Low-sulfur diesel production at the plant was shut completely, the company said. St. Charles typically produces about 55,000 barrels of diesel a day.
Gasoline for June delivery rose 5.06 cents, or 2.5 percent, to close at $2.108 a gallon in New York. Prices are up 51 percent from a year ago.
U.S. gasoline supplies probably rose for a fourth straight week as refineries prepare for summer, a Bloomberg News survey indicated. Stockpiles rose by 1.3 million barrels last week, up from 206.4 million the week before, according to the median forecast by 16 analysts. Crude oil inventories probably fell 1 million barrels from 346.9 million.
The Energy Department releases its weekly report on petroleum inventories tomorrow at 10:30 a.m. in Washington.
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