Thursday May 22, 2008

Crude oil hits US$130 on fears of supply disruption

By LEONG HUNG YEE

PETALING JAYA: Crude oil prices hit a fresh high of US$130 a barrel yesterday on worries over a potential supply disruption and analysts’ expectation that the uptrend would continue.

Analysts said the volatility in crude prices had adversely affected the bottom lines of companies involved in land transportation, aviation, food and beverage, and shipping.

Since the start of the year, the US light crude has risen about 30% to over US$129 a barrel and, in London, the Brent is up about 29% to US$129.

“People are worried that climbing energy costs are forcing prices of other goods up, too. That trend could further dampen consumers’ willingness to spend money on optional items,” an analyst said, adding that high crude prices were causing inflationary pressures.

Another analyst with a local brokerage said soaring oil prices posed new challenges.

“Business and consumer sentiment will be affected if the Government were to revise the petrol subsidy. However, as petrol price has yet to change, the general inflationary pressure comes mainly from food and beverage,” she said.

The analyst expects oil prices to maintain their upward trend over the immediate term and hover between US$120 and US$130 a barrel.

Analysts said high oil prices might also force travellers to rethink their holiday plans as airlines would probably impose higher fuel surcharges.

“While the world seems to have absorbed oil at US$100 pretty well, current prices do appear to translate somewhat into a slowdown in demand.

“While this may eventually result in a drop in oil price, there will be a lag effect and airlines will suffer in the interim,” OSK Research analyst Chris Eng said.

Despite calls by the US for the Organisation of Petroleum Exporting Countries (Opec) to raise output to stabilise prices, Opec president Chakib Khelil said on Monday that the consortium would not boost production before a meeting in September.

He said the oil markets were well supplied and attributed the soaring prices to speculation, a weak US dollar and global tensions.

Analysts said a decision by Saudi Arabia to raise output had not done much to lower crude prices. They said the market was awaiting the latest weekly report on energy inventories in the US.

An analyst said supply concerns had become the primary driver of the oil market, replacing earlier worries over a weakening dollar.

Meanwhile, billionaire hedge fund manager T. Boone Pickens told Bloomberg that oil prices would hit US$150 a barrel this year because supply was not keeping up with demand.

The possibility of oil reaching US$150 to US$200 per barrel seemed increasingly likely over the next six to 24 months, Bloomberg quoted Goldman Sachs Group Inc analyst Arjun N. Murti as saying.

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