Crude Oil at Record on Investors Demand

123jump.com Staff
15 Apr, 2008
New York City

Crude oil prices reached another record intra-day high as investors pile in looking for higher returns. Speculators and commodities investors are driving crude oil prices higher as the Fed keeps lowering interest rate. The Fed and the U.S. Treasury talks about strong dollar but have done little to save the dollar. U.S. dollar has fallen 60% against the euro in the last four years. Wheat led commodities with a rise of 120% followed by soybean with 94% and crude oil with 68% in the last year.

[R]2:15 PM New York – OPEC report projects a decline in demand in the second quarter. Crude oil prices reach a new intra-day record high.[/R]

Crude oil prices rose to a record high of $113.93 a barrel as more investors piled into the commodity on weakening dollar and weak real estate and stock markets.

The latest reports released by OPEC suggested that the demand in the second quarter is likely to decline 1.4 million barrels a day reflecting the seasonality.

For the year ending in March 2008, crude oil prices have added 68%, only trailing wheat price surge of 120% and soybean oil price rise of 94%. Gold and silver jumped 48% and natural gas added 32%.

Rising commodities prices are partly driven by falling value of the dollar and investors’ willingness to bet on rising commodities prices when the stock markets around the world have declined. U.S. market averages fell between 6% and 8% in the first quarter and China led the world stock market declines with a loss of 32%. India, Brazil, and Russia recent favorites among emerging market investors also fell between 6% and 19%.

OPEC report does not see a sharp decline in crude oil demand as economies in Middle East, China, and other emerging markets remain strong.

The OPEC report noted, “Based on the average of the last five years, the seasonal shift from the first to the second quarter typically results in a decline in the absolute level of demand of around 1.6 m barrels per day. Our current forecast suggests that world oil demand in the second quarter will drop by 1.4 m b/d to 85.7 m b/d, which is broadly in line with the typical seasonal decline.”

It further added that, “Given the typical seasonal demand pattern, the demand for OPEC crude is likely to fall to 31.0 m b/d, about 1.2 m b/d lower than OPEC production which averaged 32.1 m b/d in the first quarter 2008.”

The report also projected that the crude oil inventories are expected to rise. The report estimated, “Assuming that only half of the difference between current OPEC production and the expected demand of OPEC crude will be added to stocks, this would lead to an additional stock-build of about 0.6 m b/d or 55 m barrels. This increase is consistent with the seasonal build typically observed in the second quarter and sufficient to keep OECD commercial inventories well above the five-year average.”

The report also estimates spare production increase in OPEC will continue and projected, “Despite the numerous uncertainties affecting the demand for OPEC crude in the second quarter, current OPEC production at more than 32 m b/d will be sufficient to both meet demand growth and contribute to further stock-builds. Steadily rising OPEC spare capacity will remain well above 10%, providing an adequate cushion to ease market concerns about possible supply shortfalls.”