Oil Rises Above $135


Crude oil rose to a record above $135 a barrel as OPEC ministers said they could do nothing to stop a rally that may be heading to $200 a barrel.

Oil has risen 19 percent this month as analysts increased their price forecasts because of supply constraints and demand growth. OPEC has ``no magic solution'' to the surge, Qatar's oil minister said. Prices are ``out of the hands'' of the organization, according to Libya's top oil official.

Crude oil for July delivery rose as much as $1.92, or 1.4 percent, to $135.09 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest ever intra-day high. It was at $134.63 a barrel at 1:25 p.m. London time.

Brent crude traded above the New York contract for the first time in more than three months today as prices surged to a record in London and stockpiles at the delivery point for the U.S. contract rose for an eighth week. Brent traded as much as 4 cents above WTI today, before falling back to a discount.

The rising cost of energy and food has sparked concern inflation will quicken, preventing central banks from reducing rates to revive economic growth. The U.S. Federal Reserve is unlikely to cut further because of rising prices, minutes from its latest meeting, published yesterday, suggested.

Oil's rally is causing havoc in the airline industry. Air France posted its first quarterly loss since 2003 today. American Airlines said yesterday it would cut jobs, retire planes and axe routes because the rising cost of jet fuel threatened bankruptcy.

Brent for July settlement rose as much as $2.44, or 1.8 percent, to $135.14 a barrel on London's ICE Futures Europe exchange, an intra-day record. It was at $134.51 a barrel at 1:26 p.m. local time.

Oil for prompt delivery has surged about 8 percent in the past week while futures contracts for 2016 gained $20 to $142 a barrel. The surge has come as banks including Goldman Sachs Group Inc. and Barclays Capital have increased their price forecasts, citing supply constraints.

Goldman raised its WTI price forecast for the second half of this year by 32 percent to $141 a barrel. Goldman analyst Arjun Murti previously said oil may rise to between $150 and $200 within two years.

Oil's rally to a record above $135 a barrel came as traders bought crude to cover wrong-way bets that prices would decline, according to data from the New York Mercantile Exchange.

The number of outstanding futures contracts, known as open interest, fell 8.1 percent in a week to 1.36 million at the same time that prices rose 2.6 percent, the data show. Falling open interest and rising prices are signs that traders are buying to exit so-called short positions that would profit if oil fell, and lose money as they rose.


TradingEconomics.com, Bloomberg
5/22/2008 6:04:12 AM