Friday, May 23, 2008

Crude oil breached US$135 per barrel

History is being rewritten every day in the oil markets. The climb in crude prices have marked new record highs in 10 of the last 14 sessions. Yesterday (May 22), crude oil price breached the US$135 per barrel level after a sharp drop in US crude stocks.

The recent rally was not anymore related to the fundamentals of supply and demand according to some market analysts.

Saudi Arabian oil minister Ali Naimi was quoted as saying that the sharp rise in crude oil prices was unexpected and undesirable for either producers and consumers. When asked of his views about the persistent oil price hike, he had enumerated five key factors.

First on his list is the sharp rise in the price of all basic commodities such as metals, agricultural goods and construction materials.

Second, he blamed various disturbances in the financial markets as a result of the US subprime mortgage crisis, which had led to a weakening of the US dollar and low interest rates on dollar deposits, which had led investors to turn to basic commodities as an investment tool.

Third, the geopolitical tensions in some producing countries affect oil production.

The fourth factor is the negative analyses concerning supply and production capacities which say that oil production has peaked and casting doubt as to the availability of additional production capacity.

And the fifth factor is a rise in demand for refined products amid a sharp fall in refining capacity in consuming countries.

Meanwhile, in Wall Street, stocks are falling every time that oil prices hit new record levels. A government report raised investors' concerns about inflation brought about by excessive rise in food and energy prices. Outside of food and energy, prices rose by a faster 0.4 percent as per the government.

In the Philippines, minimum public fares have already increased by 50 centavos from Php7.50 for the first four kilometers to Php8.00. And there are reports that gasoline companies will increase its retail prices on the first week of June.

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