Crude-oil prices, already at electronic-trading intraday records, breached $96 a barrel Thursday, continuing to rally on news that US inventories dropped more than expected as well as a weakened dollar in the wake of the Federal Reserve’s interest-rate cut.
The surge came after the US Energy Information Administration said that commercial crude-oil inventories, which are inventories excluding those in the Strategic Petroleum Reserve, fell by 3.9 million barrels to 312.7 million barrels in the week ending Oct. 26. That’s the lowest since October 2005. “It’s basically supply and demand that’s pushing up oil,” said Greg Gibbs, ABN Amro’s director of foreign exchange strategy in Sydney. “Demand is still strong and supply has been somewhat constrained, especially outside of OPEC.” The front-month contract for December delivery jumped as high as $96.24 a barrel in electronic trading before slipping back. It was recently quoted at $95.70 a barrel, $1.17 higher than the previous close on the New York Mercantile Exchange.
Late Wednesday Beijing moved to boost domestic gasoline and diesel prices by 10% to curtail demand amid reports that nationwide diesel shortages had led to long lines at fueling stations. In regular Nymex trading Wednesday, the futures contract jumped as much $4.15, or 4.6%, to settle at $94.53 a barrel, after rising as high as $95.22 earlier in the day. The US dollar hit a record low of $1.4503 per euro after the Federal Open Market Committee cut the federal-funds rate by 0.25-percentage point to 4.5% Wednesday. In currency trading Thursday, the dollar strengthened to $1.447 per euro, while the Japanese currency was at 115.51 yen to a dollar. “A rate cut is positive [for oil prices] insofar as it provides some insurance to growth,” said Royal Bank of Scotland Group’s Asia strategist, Ben Simpfendorfer. “There is no sign we are about to head into recession at this point based on the current data, so that might just leave commodity prices a little better bid.”
The US economy shrugged off the worst housing downturn in a generation to grow at a 3.9% annual pace in the third quarter, its strongest performance in six quarters, the Commerce Department said Wednesday. The dollar was trading at $0.9326 against its Australian counterpart, which eased from a more-than-two-decade high of $0.9337 Wednesday. “The mood has been a bearish US dollar environment,” said an RBC Capital Markets senior currency strategist, Sue Trinh, in Sydney. Trinh noted that the Australian dollar lost ground against the greenback Thursday after rising 2.2% in the past three trading sessions. “A bit of consolidation is probably not too out of order,” Trinh said. Analysts said the rate cut had weakened support for the dollar and raised the appeal of commodity-linked currencies. “The [Fed] easing underpins already robust risk appetite and thus further strength in commodity currencies,” said Societe Generale’s Asia foreign exchange and rates strategist, Patrick Bennett, in a note Thursday.
Commodity stocks in Asia were mostly higher, with shares of PetroChina rising 2.6%. In Sydney, shares of Woodside Petroleum advanced 0.4%, while mining giant BHP Billiton advanced 0.4%, while mining giant BHP Billiton. Shares of Sinopec, Asia’s largest refiner by capacity, jumped 8.4%. The stock advanced after China moved late Wednesday to raise the price of gasoline, diesel oil and aviation fuel by 500 yuan ($67) per metric ton for wholesale prices, while prices at retail filing stations will rise by about 10%. The price hikes took effect Thursday.
The US Federal Reserve lowered a key interest rate by a quarter percentage point to 4.5% on Wednesday to help the economy ride the current housing slump and credit crunch. This was the second consecutive cut in the central bank’s target for the federal funds rate, the interest rate that commercial banks charge each other for overnight loans, in the last six weeks. On Sept. 18, the Fed lowered the key rate by an aggressive half a percentage point to 4.75% from 5.25%, where it had stood since June 2006. That was the Fed’s first rate cut in more than four years, designed to ease tightening credit stemming from troubles in the high-risk subprime mortgage market, which offers loans to people with lower credit and income.
In June 2003, in an attempt to bring the long economic downturn to a halt, the Fed lowered the short-term interest rate to 1%, taking it to its lowest level since 1958. From June 2004 the Fed began a succession of 17 consecutive interest rate increases, raising it from 1% to 5.25%. The latest interest-hike came on June 29, 2006, when the Fed boost the federal funds interest rate to 5.25%, the highest level in more than five years. Since then, the Fed has left the benchmark interest rate unchanged nine consecutive times. (marketwatch, peopledaily.com)