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Impact of Possible Iran Bombing on Oil Prices |
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Despite Inventories at 8-Year High
zPoint: Prices already reflect the chance of bombing Iran, etc.
By BHUSHAN BAHREE in New York and ANN DAVIS in Houston
April 18, 2006, Wall St. Journal
Crude oil closed above $70 a barrel for the first time, highlighting a phenomenon reshaping the petroleum world: Investment flows into oil futures are supplanting nitty-gritty supply-and-demand data as prime drivers of prices.
In contrast to past bull markets in crude, this year's run-up has occurred even though oil inventories in the U.S., the world's largest market, have swelled to their highest levels in nearly eight years.
Yesterday on the New York Mercantile Exchange, U.S. benchmark oil for May delivery settled at a record of $70.40 a barrel, up $1.08 a barrel, or 1.56%. It traded as high as $70.45 late in the session, 40 cents shy of the Nymex intraday record of $70.85, set Aug. 30 last year, as Hurricane Katrina ravaged production and refining facilities in the Gulf of Mexico. The inflation-adjusted record oil price, set April 1980, equates to $97.21 in February 2006 dollars. Year-to-date, oil is up 15%.
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The answer to the puzzle posed by rising prices and inventories, industry analysts say, lies not only in supply constraints such as the war in Iraq and civil unrest in Nigeria and the broad upswing in demand caused by the industrialization of China and India. Increasingly, they say, prices also are being guided by a continuing rush of investor funds into oil markets. Institutional money managers are holding between $100 billion and $120 billion in commodities investments, at least double the amount three years ago and up from $6 billion in 1999.
The flow of money into oil, analysts say, has been prompted by a spreading belief that demand for oil will continue to rise with global economic activity as supply tightens under the influence of several factors -- among them, the West's escalating nuclear standoff with Iran; growing political violence in oil-rich Nigeria; and more broadly, steadily growing global economic activity. The three-year bull run in oil has been underpinned by strong global demand for fuel coupled with a prolonged shortage of spare capacity to pump and refine crude.
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Analysts say that behind the flush U.S. inventories lies a new trend born of the extended run-up in oil prices. Refiners of crude, who once sought to hold lean inventories, and traders, many of whom prefer to flip paper rather than buy and hold actual oil, are now grabbing more than they used to.
Since early 2005, the crude-oil market is in what traders call "contango," meaning futures contracts for a given product are priced higher than that same good for near-term delivery. The price of oil to be delivered four months from now is about $3 more than oil to be delivered next month.
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http://zfacts.com/p/321.html | 01/18/12 07:17 GMT
Modified: Fri, 19 Jan 2007 18:07:35 GMT
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