Oil futures surpassed $121 a barrel for
the first time Tuesday, the spike fueled by worries about threats
to supply and a weakening of the U.S. dollar.
The surge in oil prices was also fueled by hopes that the U.S.
economy will be spared a sharp downturn after the release of data
Monday showing an unexpected expansion in the U.S. service sector
in April, analysts said.
Light, sweet crude for June delivery rose to a record $121.49 a
barrel in electronic trading on the New York Mercantile Exchange on
Tuesday. The contract later retreated to $121.30 a barrel, up $1.33
from Monday's close.
Crude futures settled on Monday at $119.97 a barrel, up $3.65
from Friday's close.
"The bulls are in control of the market," said Victor Shum, an
energy analyst with Purvin & Gertz in Singapore. "The economic
report out of the U.S. yesterday on the service sector seems to
suggest the economic slowdown may not be as deep as initially
thought."
"The sentiment is that the oil pricing is likely going to stay
quite strong, with a lot of volatility," Shum said.
Meanwhile, a Goldman Sachs analyst on Tuesday predicted that oil
prices could reach $150 to $200 a barrel over the next six months
to two years, but said that how far prices could climb still
"remains a major uncertainty."
"We believe the current energy crisis may be coming to a head,
as the lack of adequate supply growth is becoming apparent,"
analyst Arjun N. Murti wrote in a client note.
He raised his 2008 prediction for benchmark West Texas
Intermediate crude to $108 per barrel from $96, and his 2009
estimate to $110 from $105. He lifted his prediction for 2010 and
2011 to $120 from $110.
But he also said it was possible that oil could hit $125 this
year and $200 in 2009 before coming down to $150 in 2010.
The dollar weakened against the euro on Monday, attracting
investors to oil and other commodities viewed as hedges against
inflation. Also, a falling dollar makes oil less expensive to
investors overseas. A series of U.S. Federal Reserve rate cuts
starting last year weakened the dollar considerably against foreign
currencies, and analysts blame the dollar's protracted decline for
oil's sharp rise this spring.
Supply outages or potential threats to supply emerged in Iran
and Nigeria over the weekend and from Iraq on Monday; events in all
three nations have caused prices to spike many times in recent
months.
In Iraq, Kurdish rebels warned they could launch suicide attacks
against American interests to punish the U.S. for sharing
intelligence with Turkey after Turkey bombed rebel bases in Iraq on
Friday. In Nigeria, a Royal Dutch Shell PLC spokesman said
attackers hit an oil facility belonging to Shell's joint venture in
southern Nigeria and that some oil production had been shut down.
And Iran's Supreme Leader Ayatollah Ali Khamenei said his country
will not bend to international pressure and give up its nuclear
program.
Energy investors grow concerned any time conflict breaks out or
is threatened in the oil-rich Middle East. Years of unrest in
Nigeria have cut off nearly a quarter of the major U.S. supplier's
oil output.
Amid the occasional threats to crude supplies, global demand for
oil continues to grow. The Chinese and Indian economies are growing
by double digits, boosting global demand for oil.
In the U.S., where demand has been dampened over economic
concerns, the prince for "gasoline at the pump is averaging 29.4
percent above last year's pace," noted Stephen Schork of the
Schork Report. "Meanwhile, average diesel prices are up by 41.1
percent or $1.079 a gallon."
In other Nymex trading, heating oil and gasoline futures were
both down by over a penny at $3.29225 and $3.0400 a gallon. Natural
gas futures slipped more than 6 cents to $11.145 per 1,000 cubic
feet.
Brent crude futures rose 30 cents to $118.29 a barrel on the ICE
Futures exchange in London.