Oil price surges on tensions in Middle East

PARIS: Oil prices surged Monday, lifting energy stocks and other commodities on concern that the Israeli attacks on Hamas would stoke tensions across the Middle East and disrupt crude supplies.

In a third straight day of deadly air strikes against Hamas Monday, Israeli warplanes pounded targets in Gaza. The attacks brought the death toll in Gaza to more than 300, according to Palestinian medical officials.

Those events underscored the market's sensitivity to conflict in a volatile region that produces a third of global crude. Some analysts also said crude is benefiting from heightened tensions between India and Pakistan.

On the New York Mercantile Exchange, light, sweet crude for February delivery rose $1.05, or 2.8 percent, to $38.76 a barrel. It earlier touched a session high of $42.20. The February CBOT gold futures contract added 1.3 percent to $882.5 an ounce, while copper prices also rallied.

Helen Henton, head of commodity research at Standard Chartered Bank in London, said that while the price spike was driven by events in the Middle East, it also suggested that "over the longer term, the oil price has found a floor."

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Before the latest trouble in the Middle East, the price of a barrel had plunged - from a record $147.27 in July to a recent low of $33.87 Dec. 19 - as demand collapsed. The top exporters responded by slashing production.

This month, the oil producing cartel OPEC announced a 2.2 million barrel-a-day cut in output quotas, effective at the start of January. That was the third cut since September.

"As the OPEC cuts start to feed through, the market will appear tighter" and prices should start to rise Henton said.

Still, analysts stressed that the backdrop to the market remains one of soft demand as the world's major economies slip deeper into recession.

That was reflected by the December oil market reports from major official forecasters. The U.S. Department of Energy, the International Energy Agency and the OPEC Secretariat all significantly cut their estimates for oil demand growth forecasts for 2009.

In a research report released after the OPEC announcement this month, a Deutsche Bank analyst, Adam Sieminski, forecast that additional output cuts would be enacted throughout next year as demand stays soft.

Henton at Standard Chartered said that $40 a barrel appeared to be too low, as production cuts feed through, as emerging market economies are widely expected to recover by the start of 2010 and as it becomes apparent that extraction investment had slowed.

"There's a danger that the price could move quite sharply - there could be a crunch" in 2009, she said, as supply dwindles.

Still for coming months, she added, the outlook was for soft but "very volatile" prices.

European stocks were mostly higher Monday, following a similar pattern in Asia, lifted by energy and mining shares.

The FTSE 100 index in London gained 1.9 percent and the DAX in Frankfurt climbed 1.6 percent.

On Wall Street, the Dow Jones industrial average shed 0.6 percent and the S&P 500 index lost 1.5 percent.

Martin Van Vliet, an economist at ING in Amsterdam, cautioned against assuming a meaningful end-of-year rally in European stocks given thin market conditions and continued weakness in financial stocks.

"Let's get into 2009 and see if there is some light at the end of the tunnel - then we can start thinking about a recovery in 2010," he said.

Energy and resource stocks led the gains in Europe. BP, the British oil company, added 4.2 percent and Repsol of Spain was up 1.9 percent. BHP Billiton, the world's biggest mining company, advanced 5.1 percent in London.

Several European data releases Monday served to highlight the weak state of activity in Europe. A survey of Italian business confidence fell to a fresh record low in December, plummeting to 66.6 from 71.6 in November, while Spanish producer price data and an inflation report from the German state of Saxony suggested that prices in the euro zone are still under downward pressure.

Asian stocks climbed as speculation about merger activity lifted insurers, while commodity producers advanced.

The Nikkei 225 stock average added 0.1 percent in Tokyo, while the Sensitive Index gained 1.4 percent in Mumbai. Markets in Indonesia, Malaysia, and the Philippines were closed.

Indonesia says Chevron may invest $3 billion there

Chevron Corp.’s Indonesian unit, which accounts for about 42 percent of the nation’s oil output this year, may invest $3 billion to boost production from a Sumatran field, a government official said.

The company will use a new drilling technique to increase its extraction rate to tap 800 million barrels of oil that is currently inaccessible, Eddy Purwanto, deputy of operations at Indonesian oil and gas regulator BPMigas, said in Jakarta today.

A $170 million pilot project is being conducted until 2011 to test the new technology that uses chemical injection to produce oil, Purwanto said.

If the project is a success the company will “continue on a larger scale,” he said.

Chevron is turning to new drilling techniques to halt a drop in production. The Southeast Asia nation imports about one- third of its oil products amid a lack of investment in new reserves and limited refinery capacity.

Chevron’s Sumatra concessions including the Duri and Minas areas may produce an average 405,000 barrels of oil a day this year, lower than the 408,000 barrel-a-day target set by the government or 425,000 barrels a day last year, Suwito Anggoro, president director of Chevron’s Indonesian unit, said Sept. 8.

Anggoro couldn’t be reached for comments on his mobile phone.

Palm oil closes up

Malaysian crude palm oil futures ended 1.9 per cent higher on Wednesday as traders closed their positions ahead of the Christmas holiday.

Crude palm oil has been one of the most bearish commodities this year, analysts say, with surging stock levels and a weaker crude mineral oil market dragging the vegetable oil down 65 per cent from a March peak of 4,486 ringgit per ton.

Palm oil seems sensitive to the swings in crude but it (the firmer close) is generally attributable to position squaring ahead of the holidays said the head of a local commodities broker.

Another trader said: Good exports for December have been priced in, so what the market needs to find out is how January exports will be like.

My guess is that it won’t be as spectacular as December or November. The benchmark March 2009 on Bursa Malaysia’s

Derivatives Exchange closed 29 ringgit higher at 1,559 ringgit ($448.9) per ton.

Gains in other traded months ranged between 22 ringgit and 30 ringgit.

Vegetable oil markets move in tandem with crude oil as soyoil and rapeseed oil are heavily subsidised as feedstock for biodiesel, which competes directly with petroleum diesel.

In Malaysia’s physical market, crude palm oil for both December and January shipments in both the southern and central regions saw bids and offers at 1,560/1,570 ringgit.

Trades were done at 1,560-1,570 ringgit.

The Indonesian palm oil market slowed as many players have gone for holidays.

The Jakarta-based state marketing centre will not hold any more palm auctions for this year. The next will be on Jan. 5, 2009.

Indonesia’s largest listed plantation firm, PT Astra Agro Lestari , also said it will not hold palm oil auctions from Dec. 25 to Jan. 2.

Producers in Medan -- home to Belawan port, Indonesia’s key port for palm oil exports -- did not hold an auction.

Meanwhile, refiners in Jakarta sold refined, bleached, deodorised (RBD) palm oil, used as cooking oil, at about 5,700 rupiah ($0.523) a kg, down from 5,850 rupiah per kg on Tuesday.—Reuters

Oil Prices Reach 36 U.S. Dollar

World oil prices reached 36 U.S. dollars per barrel, Friday (19/12) or the lowest point in the four subsequent statement that OPEC cutting production is unable to raise the price of oil. Trade in New York, oil for delivery of light sweet January increased a few cents from 36.26 dollars per barrel from 36.04 dollars per opening barrel. Crude oil contract Thursday (18/12) to achieve this kind of lowest point since July 2004 with 36.22 dollars per barrel during trading on Thursday. Similarly, the oil of Brent North Sea for delivery in February and diminished to survive 2.17 dollars per barrel at 43.36. Pelambatan economic glonal fear and decrease demand for more energy to make the price of oil from the highest exchange 147 dollars per barrel in July. To raise prices, OPEC, which supply 40 percent of the world's oil needs and agreed on Wednesday cut their production by 2.2 million barrels per day, or 7 percent of the total production cartel. Cutting it was the third time in three months and the largest reduction since the cartel reduce production in 1982. Before cutting, the OPEC target of 27.3 per day million barrels per day.