Oil prices dropped below $126 a barrel Monday in Asia after punching
through to another trading record at the end of last week despite an
increase in output by Saudi Arabia.
The world's leading oil producer promised an additional 300,000
barrels of crude a day as US President George W. Bush wrapped up a
meeting Friday with Saudi Arabia's King Abdullah. But that and the US
move to temporarily stop filling government stockpiles have done
little to change overall sentiment in the market.
``There's a perception that demand is going to hold up pretty strongly
this year,'' said Mark Pervan, senior commodity strategist at
Australia & New Zealand Bank in Melbourne. ``This idea that the market
just couldn't handle a hundred dollar oil has just gone out the
window ... so there's a parallel shift at where the market will
trade.''
Late afternoon in Singapore, light, sweet crude for June delivery was
down 34 cents at $125.95 a barrel in electronic trading on the New
York Mercantile Exchange.
In Friday trade, the June contract hit a trading record of $127.82 a
barrel before settling at $126.29, up $2.17 from the previous close.
That record was the eighth in the previous 10 sessions, and the first
time oil had topped $127.
The reason for the disconnect between the US and Saudi decisions and
oil prices has primarily to do with market expectations. The Saudi
production increase was seen as minuscule, and no one expected the
suspension of shipments to America's Strategic Petroleum Reserve to
have much impact on supplies.
Goldman Sachs, one of the most influential investment banks,
underscored that sentiment Friday when it hiked its oil price forecast
for the second-half of the year to US$141 a barrel, up from US$107
previously. Analysts at the bank argue that the oil market is
undergoing a ``structural repricing'' that will continue to play out
for some time to come.
``We would view any pullback in oil, regardless of the size or
duration _ although a correction could be as large as 15 percent _ as
an opportunity to re-establish long positions in oil before the
summer,'' Goldman Sachs advised traders.
Earlier this month, a Goldman Sachs analyst predicted that oil prices
could reach US$150-US$200 a barrel over the next 6 months to two
years.
There has been a growing belief that the investment bank is ``going to
be correct again,'' said Pervan. ``It was a contentious call when they
called ... for $100 oil ... but this second call has a lot more
credit,'' he said.
Arjun N Murti, the Goldman Sachs analyst making the call for $150-$200
oil, had forecast in April 2005 _ when oil was trading at less than
$60 a barrel _ that prices would rise to as high as $105.
At the time, many analysts said the market would never support such
high oil prices.
``The market's sitting up and listening a lot more closely this time
around,'' said Pervan.
In other Nymex trading, heating oil futures fell 1.5 cents to $3.6878
a gallon (3.8 liters) while gasoline prices fell 0.4 cent to $3.2195 a
gallon. Natural gas futures rose 3.3 cents to $11.127 per 1,000 cubic
feet.
July Brent crude fell 62 cents to $124.37 a barrel on the ICE Futures
exchange in London.
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