Oil is breaking $78 in midmorning Asian trading...
SINGAPORE - Oil prices continued trading above $78 per barrel Friday as continuing violence in the Middle East raised concerns of a possible disruption of oil supply.
"We are certainly in uncharted territory," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "I wouldn't be surprised if $80 is attained soon with this slew of geopolitical events in a tight market."
Light sweet crude for August delivery was up $1.40 to $78.10 in midmorning Asian trading on the New York Mercantile Exchange. The price closed Thursday at a new high of $76.70 a barrel, then continued climbing in after-hours electronic trading, when volumes are significantly lower, to $78.35.
The rule of thumb is that every dollar increase in oil price will result in a jump of about one nickle in gasoline price.
In other Nymex trading, gasoline futures climbed 3.22 cents to $2.3335 a gallon, heating oil futures rose more than 3 cents to $2.1185 a gallon and natural gas futures advanced 93 cents to $6.222 per 1,000 cubic feet.
$80 is the next near term level should be closely watched on Friday. If this level is broken, I predict $85 will be very likely next week.
The following excerpt from a WSJ article ...
Taking the pulse of the rallying oil market one thing seems clear: $80 is the new $70.
With another explosive surge in oil prices, more participants in the market are talking about prices making a decisive leap to $80 a barrel, a level that would have seemed unthinkable a year ago, just as the idea of oil trading at $70 once seemed a far-fetched notion.
As crude futures climbed above $76 yesterday, buoyed by heightened tensions in the Middle East, Wall Street firms have started revising their price forecasts upward, and market analysts are calling for much higher prices.
Some see the likelihood of $90 oil. Others are seriously mulling the possibility of $100, a level Goldman Sachs last year predicted oil would breach, to much ridicule at the time. In the options markets, where investors can take positions on movements of prices in the future, some have placed long-shot bets on prices rising to $175 a barrel by December.
But the biggest odds appear to be placed on the price of oil hitting $80 a barrel. T. Boone Pickens, the legendary Texas oil man who made billions betting on oil prices, has made that prediction, although he doesn't see it happening before the early part of next year. Analysts at Barclays Capital said a test of $80 a barrel was "imminent," noting the risk that the conflict in the Middle East could develop "into regional conflagration with the potential for Syria to also become involved."
"While a strike by Israeli forces into Lebanon seems to be far away from the oil patch, when Israel's lawmakers lay the blame for Hezbollah's activity at Iran's doorstep...oil subsequently has to be the focus," said John Kilduff, senior vice president of risk management at Fimat USA. "The security premium in prices is being pumped up again."
Fimat is among those that think $80 oil is on the horizon.
In my opinion, it's not JUST the lastest middle east crisis that jump-started the oil prices again, the fundamentals are also very strong for even higher oil prices.
The demand from China is unabated...
China's imports of crude oil in the first half of this year surged 15.6% from a year earlier, underscoring Beijing's difficulty in trying to curb its runaway appetite for energy. The import figures, released yesterday by China's General Administration of Customs, point to a big rebound in China's oil demand so far this year, analysts said. In the first half of 2005, China's oil imports grew 3.9%.
The surprisingly strong import numbers reflect China's continued growth as an oil-consuming powerhouse, a trend that has helped drive up oil prices in recent years. China already is the world's second-biggest oil consumer, after the U.S., with demand propelled by a newfound love affair with automobiles and an economy on track to grow 10% or more this year.
In June, China imported just under three million barrels a day, roughly 40% of its total oil use. The Paris-based International Energy Agency projects China will use seven million barrels of oil a day on average this year, up 6.1% from last year, an estimate some analysts consider conservative.
The first-half import growth rate is another nail in the coffin for the oil-price bears," said Gordon Kwan, director of China oil research for CLSA Asia-Pacific Markets. CLSA projects China's oil demand this year will grow 8.5%.
If my regressional model is correct, we will soon see an average of high 20s approval rating for Little Bush with oil prices at $80-$85.