No stopping oil price rise

Energy Secretary Angelo Reyes called on the public Thursday to brace themselves for still higher fuel prices as world oil leapfrogged to record highs above $135 on runaway fears about tight energy supplies, rising global demand and a slumping US dollar.

London Brent crude hit a historic high of $135.13 a barrel, while the benchmark New York light, sweet crude struck an all-time peak of $135.09

"This is the reality that we must face and act on," Reyes said, citing a forecast by investment bank Goldman Sachs that oil prices would average $141 a barrel in the second half of this year and could top $200 a barrel by 2010.

To mitigate the impact of the soaring oil prices particularly on the transport sector, Reyes said the government was scrapping the remaining 1-percent import duty on crude oil and refined oil products effective June 1.

He said the zero tariff would reduce the price of diesel by at least 50 centavos per liter--a minimal impact on pump prices which oil companies have been jacking up by P1 per liter every week starting this month.

As a long-term measure, Reyes said he was pushing for a "drastic shift" by the transport sector from crude-based fuel to alternative fuels like compressed natural gas and liquefied petroleum gas.

'Up all the way'

With gas and oil prices setting new records nearly every day, many analysts are beginning to wonder what could stop prices from rising. There are technical signals in the futures market, including price differences between near-term and longer-term contracts, that crude may soon fall.

But with demand for oil growing in the developing world, and little end in sight to supply problems in producing countries such as Nigeria, few analysts are willing to call an end to crude's rally.

"Prices are going in one direction...They are up all the way," said Gerard Rigby of Fuel First Consulting in Sydney.

David Moore, commodity strategist with the Commonwealth Bank of Australia in Sydney, said the sentiment in the market "is very bullish at the moment."

"The US dollar was weaker last night, and also the US EIA (Energy Information Administration) report showed an unexpected decline in US commercial crude oil inventories, so there's a combination of factors pushing the oil prices higher," Moore said.

Crude prices blew past $130 on Wednesday amid concerns about demand, supplies and a weaker dollar, and then prices just kept going up. The price rise accelerated when the US Energy Department's Energy Information Administration said US crude inventories fell by more than five million barrels last week. Analysts had expected a modest increase.

Late Thursday afternoon in Singapore, light, sweet crude for July delivery was up $1.71 at $134.88 a barrel in electronic trade on the New York Mercantile Exchange.

The contract had earlier hit a trading record of $135.09 a barrel after rising $4.19 during Wednesday's floor session to settle at $133.17. The settlement price marked crude's largest one-day price advance since March 26.

Some analysts say crude has been boosted in recent days by especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and certain earthquake-hit regions are relying on diesel generators for power.

Aging oil fields

Also, the Wall Street Journal reported on Thursday that the Paris-based International Energy Agency (IEA) is in the middle of its first attempt to comprehensively assess the condition of the world's top 400 oil fields.

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently.

Now, the IEA is worried that aging oil fields and diminished investment mean that "future crude oil supplies could be far tighter than previously thought."

The agency feels that oil companies may have to struggle to surpass 100 million barrels a day in production over the next two decades, the newspaper reported.

That view has been echoed by many analysts watching the seeming unending string of oil price records.

Structurally tight

"The market is really structurally tight … oil demand is not growing that fast but supply is constrained," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

In its weekly report, the US Energy Information Administration said gasoline inventories also fell, which took the market by surprise as well. Inventories of distillates, which include heating oil and diesel fuel, rose less than analysts had expected.

In Asia, the dollar has gained slightly from overnight levels, but the US currency is still showing a downward bias that wasn't there last week.

Investors see hard commodities such as oil as a hedge against inflation and a weak dollar. They pour into the crude futures market when the greenback falls. A weak dollar also makes oil less expensive to buyers dealing in other currencies.

Many investors believe the dollar's protracted decline over the past year has been the most significant factor behind oil's rise from about $66 a barrel a year ago.

Bullish factors

"All the focus is on bullish factors. You simply have to follow the trend and buy now," said Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo.

"You really cannot forecast how much further the market will rally now. All I can say is the market will continue to rise," Kageyama said.

Moore, however, said his bank's expectation "is that oil prices will ultimately fall back from current levels over the course of this year...the likelihood is that we'll have oil prices remaining at what would be considered a high level by the standards of a couple of years ago for some time yet."

-source: inquirer.net