After rising past US$101, oil prices hold near US$100

21-Feb-08

Light, sweet crude for April delivery held at US$99.78 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore. After rising to a record levels above US$101 a barrel, oil prices have stabilised at around US$100 a barrel, on additional cash inflow from investors into crude and other commodities as a hedge against inflation. Oil futures spiked to all time highs briefly after the US Federal Reserve lowered its forecast for US economic growth this year, leading energy investors to believe that the central bank will slash interest rates further. Damage from the housing slump and problems in the credit markets will slow economic growth to between 1.3% and 2% this year, down from a previous forecast for GDP growth of between 1.8% and 2.5%. Oil investors can interpret such news in one of two ways: Selling on concerns that the economy, and subsequently demand for oil, is cooling; or buying on the prospect that interest rates will fall, weakening the dollar and feeding new buying of oil futures. A further rise is expected in US crude inventories for a sixth straight week on Thursday from data released by the US Department of Energy. The March contract rose as high as US$101.32 a barrel, a new trading record. Oil prices are still within the range of inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, US$38 a barrel then would be worth US$96 to US$103 or more today.