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Oil jumps over $90 a barrel, dollar sinks to new low against the euro
FT
October 19, 2007
Crude oil prices on Friday rose to a fresh all-time high above $90 a barrel as the US dollar sunk to a new low against the euro.
Persistent worries about tight supplies ahead of the winter peak season and fresh geopolitical tensions also helped to push prices higher.
Nymex November West Texas Intermediate hit $90.02 a barrel in overnight trading. It later was 10 cents higher at $89.57 a barrel, extending Thursday’s $2.07 price jump. It is the sixth straight trading day that oil set a record high.
Edward Morse, chief energy economist at Lehman Brothers in New York, said that financial flows betting on further US dollar weakness ahead of the Group of Seven meeting and the US Federal Reserve meeting were propping up the oil price.
The dollar traded on Friday to $1.4303 against the euro, after touching earlier a record low of $1.4311 per euro. Investors are betting on a further interest rate cut when the Federal Reserve meets on October 31.
A lower dollar cuts the purchasing power of the barrel, suggesting that producing countries, such as Saudi Arabia, would try to keep the oil price higher to compensate for it. The strength of the euro, the sterling pound and other currencies also mean that some countries, particularly in Europe, are partially insulated from the oil price rally.
David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney, said: “The dollar fell to new lows overnight. That fact has been a boost to all commodity prices.”
The Nymex December West Texas Intermediate contract which will become the oil market benchmark early next week traded at $88.01 a barrel, after hitting $88.49 a barrel.
Nauman Barakat, senior vice president at Macquaire Futures in New York, warned that traders have built massive December options calls -rights to buy oil at a certain price- at $90 and $100 a barrel, providing the backdrop for “additional upward impetus.”
Kevin Norrish of Barclays Capital said that the issue no longer seems to be whether oil will reach $100 a barrel, but when.
“Until there is a clear prospect of the [supply-demand] gap being filled, then the course is set for the market to take out $90, $100 and $110 in fairly quick succession,” Mr Norrish said.
Low inventories crude oil inventories ahead of the winter season are also supporting prices, traders said.
OECD crude oil and products stocks have fallen below their 5-year average, after the inventories suffered a counter-seasonal drop in the third quarter.
The IEA estimates that between July and September inventories fell at a rate of 360,000 barrels a day, sharply diverging from a 10-year average of increases in that period of about 260,000 b/d.
Inventories at Cushing, Oklahoma, the delivery point for the New York Mercantile Exchange crude oil contract are running 19 per cent below last year.
The Organisation of the Petroleum Exporting Countries, which controls 40 per cent of the world’s crude oil output, denies that the market is tight, instead blaming speculation, the weakening of the dollar and Middle East tensions for the 13 per cent jump in prices in the past week.
The price jump could force Opec to call for an emergency meeting ahead of its head of state summit in Riyahd, Saudi Arabia, in late November, and its ministerial meeting in Abu Dhabi, United Arab Emirates, in early December.
Saudi Arabia, the cartel’s leader, has remained silent on whether to increase production further, but at the last Opec meeting it pushed for a production boost in spite of strong opposition from other countries, suggesting the kingdom is concerned about the impact of high oil prices on the global economy.
Opec officials said the cartel’s ministers were just returning from holidays after the end of the Ramadan, implying it may take extra time for the group to discuss a new production increse.
Dollar dives as US slump spreads
Telegraph
October 20, 2007
The dollar has plummeted to all-time lows against both the euro and a basket of global currencies amid growing fears of a disorderly rout as the US property slump spreads to the broader economy.
Ambrose Evans-Pritchard: Is there really a sea of limitless liquidity?
The greenback dived after the US ‘Philly’ business index dropped 10.9 to 6.8 in October, with a shock fall in new orders and inventory, raising the chances of further rate cuts by the Federal Reserve this month.
The dollar crossed the barrier of $1.43 against the euro; the broader dollar index fell to 77.478, the lowest since the series began in 1973.
The plunge follows data released this week by the US Treasury showing a record $163bn (£80bn) exodus from all forms of US assets, led by unprecedented levels of US bonds sales by Japan, China and Taiwan.
Bundesbank chief Axel Weber gave the euro an extra lift by hinting strongly at more rate rises in Europe to head off inflation, expected to reach 2.6pc in Germany.
The growing belief the European Central Bank may keep tightening despite the credit crunch has caused traders to shift gear, renewing bets on the euro. But the surging currency has hit confidence in Europe, where industries in France, Italy and some German firms are warning of serious knock-on effects.
Airbus says each one cent move costs the group $100m in profits.
Ernest-Antoine Seilliere, head of the EU-wide lobby BusinessEurope, called for “political intervention” by the G7 club of economic powers at today’s meeting in Washington.
Rodrigo Rato, head of the International Monetary Fund, offered little hope of relief. “Our view regarding the euro is that the euro stays in line with medium-term fundamentals on a multilateral basis. It is true the euro is close to historic highs in real terms, but it is also true the euro-area current account is in broad balance,” he said.
French president Nicolas Sarkozy has called for EU action to force a shift in exchange rate policy, if necessary by strong-arming the ECB to halt its campaign of rate rises.
Germany has a huge trade surplus, but France faces the biggest deficits in its history. Spain’s current account deficit is 9pc of GDP.
The US has adopted a policy of benign neglect towards the dollar slide, seeing it as a way to correct a huge current account deficit, but there are now concerns the process may be getting out of hand.
The Manufacturers Alliance/MAPI said in its quarterly outlook the soft dollar was complicating life for America’s key trading partners and risked triggering a global slowdown. “Global sentiment against the dollar is gaining traction, generating daunting challenges for the short-term economic outlooks of major US trading partners.”
Mitul Kotecha, an economist with Calyon, said: “The United States will do no more than repeat that markets determine exchange rates and will oppose any sort of intervention. There is every chance the aftermath of the G7 meeting will see the dollar resume its weakness.”
Paul Robinson, an analyst at Barclays Capital, said the prospect of Fed rate cuts had knocked away a key prop for the dollar, warning it could slide to $1.50 against the euro.
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