Oil Prices Remains High

Oil stays above US$129 in Asian trade
Posted: 21 May 2008 1139 hrs

SINGAPORE : Oil stayed above 129 dollars a barrel in Asian trade Wednesday, driven by concerns over tight global supplies amid strong demand, dealers said.

A weak US dollar and renewed tensions between the United States and Iran further heated the market, which has already been feverish due to the entry of speculative funds, they said.

New York's main oil futures contract, light sweet crude for July delivery, was up six cents to 129.04 dollars a barrel.

The contract for June struck an all-time high of 129.60 dollars, before expiring at 129.07 dollars on Tuesday at the New York Mercantile Exchange.

London's Brent crude contract for July was up 12 cents at 127.96 dollars a barrel. It had briefly hit a new all-time high of 128.07 dollars earlier.

Tony Nunan of Mitsubishi Corp's international petroleum business in Tokyo, said concerns that supplies are not keeping up with demand are driving prices higher.

"The market is technically and fund-driven right now," he said, referring to investors buying into oil in hopes for higher returns.

David Moore, a commodity strategist at the Commonwealth Bank of Australia, said a weaker US dollar and "the recent trend for analysts to revise higher their oil price forecasts" are helping push prices up.

Commodities such as oil priced in the US currency are cheaper for holders of stronger currencies.

Moore also said there are reports that the need for diesel-fuelled power generation in earthquake-affected areas of China is boosting demand for the fuel.

The Chinese government said Tuesday the death toll from the 8.0 magnitude earthquake that devastated the nation's southwest on May 12 had risen to 40,075.

Eric Wittenauer, analyst at Wachovia Securities, said reports about growing tensions between Washington and Tehran heightened concerns about a conflict that could also affect the oil-rich Middle East.

He said the market reacted to an article in the Jerusalem Post that said US President George W. Bush "intends to attack Iran before the end of his term."

"We have certainly not ruled out the possibility of conflict later this year," Wittenauer said.

Despite calls by the United States for the Organisation of Petroleum Exporting Countries (OPEC) to raise output in order to cool down prices, OPEC president Chakib Khelil said Monday the oil cartel would take no decision before a meeting in September.

Many OPEC officials argue that record oil prices are being driven by speculators rather than investors reacting to the actual supply-demand balance.

Oil prices have jumped more than a quarter since the start of 2008, when they struck 100 dollars a barrel for the first time.

- AFP /ls