Overnight rally in Asian trading spikes oil prices

18-Jan-07

Oil prices rose on Thursday in Asian trading after an overnight rally of more than a dollar a barrel on speculation that prices may have bottomed out. Investors seem wary about taking short positions that would test the psychologically key US$50 mark. A barrel of crude has not settled below US$50 since May 24, 2005. But prices slid as low as US$50.28 in early trading on Tuesday before recouping the losses. Light, sweet crude for February delivery rose to US$52.57 a barrel in electronic trading on the New York Mercantile Exchange midmorning in Singapore. Saudi Oil Minister on Wednesday is reported to have stated that OPEC production cuts were working well and there was no need for an emergency meeting of the producer group and despite the recent drop in prices, OPEC members would push ahead with plans to invest billions of dollars to boost production capacity so they could meet growing demand, especially from Asian economic powerhouses India and China. Adding to the bearish news, the International Monetary Fund has revised down its 2007 estimate for global oil prices to US$52.00 a barrel from a September forecast of US$75.50. Prices spiked in 2005 and 2006 because of large amounts of speculative funds flowing into the market. But many investors are now looking at the fundamentals of demand and supply, instead of pure speculation. But it seems that crude oil prices may not go back to US$30-40 a barrel as seen in the past.