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oils record advance not yet over

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    Oil's record advance not yet overBrought to you by
    March 01, 2008

    OIL settled lower on profit-taking from a week of record highs, but the upward momentum shows little sign of running out of steam.

    Investment funds continue to flock to oil and other commodities against the US dollar's weakness, while supply concerns from outages in Ecuador and Nigeria have been reinforced by expectations the Organisation of Petroleum Exporting Countries will decide to maintain output levels next week.

    Light, sweet crude for April delivery fell US75c, or 0.7 per cent, to settle at $US101.84 a barrel on the New York Mercantile Exchange, versus Thursday's record settlement price of $US102.59 a barrel. In Asian trade, the contract hit a new high of $US103.05 a barrel, just shy of the inflation-adjusted all-time record of $103.76 a barrel from April 1980.

    Brent crude on the ICE futures exchange fell US80c, or 0.8 per cent, to settle at $US100.10 a barrel.

    Crude prices have climbed 2.6 per cent since Monday, and Friday's pullback from the previous day's record is a momentary breather as traders square their positions and prepare to march higher again next week.

    "The market's just given back some of the excesses we've seen over the last week," said Scott Meyers, an analyst at Pioneer Futures Inc.

    Prices are up nearly 15 per cent since the beginning of February.

    The Nymex crude contract bounced back and forth in a $US1 range, emerging briefly into positive territory as the US dollar sank, but for the most part stayed below the $US102-a- barrel mark.

    "It's once again the same story as yesterday - the poor little US dollar," said Phil Flynn, a broker at Alaron Trading. He added that the poor showing from the stock markets "probably doesn't bode well for the US dollar," which in turn should kick crude futures higher.

    Expectations for a further interest rate cut when the Federal Reserve meets on March 18 are also feeding into the US dollar's weakness. Chairman Ben Bernanke's grim forecast for the US economy earlier this week was reinforced by a paper by top economists presented overnight, which said the fallout from the sub-prime mortgage crisis could cut GDP growth this year by 1 per cent to 1.5 per cent.

    In response, Fed governor Frederic Mishkin said: "To the extent that the meltdown in the mortgage market has revealed even deeper problems in the financial system, the negative impact on economic activity could be even larger" than the authors estimate.

    Worries over curtailed supply also limited losses. Late on Thursday, Ecuador declared force majeure on oil exports following damage to a 350,000 barrel-a-day oil pipeline, which was confirmed early yesterday by the oil and mining minister, Galo Chiriboga. As a result, the next shipments could be delayed by three or four days, a high-level official told Dow Jones Newswires. Ecuador is the second-largest South American supplier of crude oil to the US, according to the US Department of Energy's Energy Information Administration.

    Meanwhile, in Nigeria, Eni has cut 50,000 barrels a day from its Brass River terminal.

    Together with the record oil prices, OPEC will be hard pushed to decide on an output cut at its meeting in Vienna on March 5. Stephen Schork, editor of energy newsletter the Schork Report, said: "The first 10 contracts on the NYMEX all settled above $US100 last night ... we think the producer group wants a cut, but in this price environment that is a difficult sell."

    The group's Economic Commission Board, which has no advisory capacity, but which assesses the fundamentals of the oil market, concluded a two-day meeting in Vienna with sentiment for maintaining current levels, and the group is widely expected to do so next week.
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