Crude touches almost $130

Higher price forecasts push crude prices to a new high

Crude-oil futures closed above $129 a barrel for the first time ever on Tuesday, 20 May, 2008. Crude oil rose for a third straight session after billionaire hedge-fund manager Boone Pickens said prices will reach $150 a barrel this year as demand outpaces supply. A strengthening of the euro against the dollar added to the gains. The dollar fell after the International Monetary Fund said the U.S. housing slump still poses serious risks to financial markets.

Crude-oil futures for light sweet crude for June delivery today closed at $129.07/barrel (higher by $2.02/barrel or 1.6%) on the New York Mercantile Exchange. Price touched a high of $129.6 earlier during the day. The June contract expired today. The more-active July futures contract rose $2.26 (1.8%) to settle at $128.98 a barrel.

Last week, crude prices closed higher by 29 cents. For the year, crude is up by 29.6 % till date. Prices have just doubled on a yearly basis.

At the currency markets on Tuesday, the U.S. dollar fell against its major rivals on higher inflation in Germany and tamer U.S. inflation. The dollar declined as much as 1.1% against the euro on speculation the European Central Bank will keep interest rates high. The dollar index, which tracks the performance of the greenback against other currencies, fell to 72.43 from 73.059 in late North American trading on Monday.

Since last September, Fed has axed interest rates seven times and brought it down to 2%. The ECB has kept rates unchanged at 4% since June, 2007.

Dollar weakness typically benefits dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Last week, prices almost kissed $128 after Goldman Sachs raised its forecast on Friday for the average price of West Texas Intermediate oil in the second half of 2008 to $141 a barrel from $107 a barrel. As per the company’s reports, long-term oil prices will need to continue to rise to bring trend oil demand growth in line with trend supply growth. Credit Suisse Group AG and Societe Generale SA raised their oil price forecasts for 2008 and 2009 today, citing investor flows and limited supply.

Natural gas rises in tandem with crude oil

Brent crude oil for June settlement today rose $2.78 (2.2%) to $127.84 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.

Natural gas in New York advanced as crude oil rose to a record and the dollar fell against the euro. Natural gas for June delivery rose 41.1 cents (3.8%) to settle at $11.365 per million British thermal units.

Against this backdrop, June reformulated gasoline climbed by 6 cents to close at a record $3.30 a gallon. June heating oil finished at $3.775 a gallon, up 9 cents for the session.

Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.

At the MCX, crude oil for May delivery closed at Rs 5,450/barrel, higher by Rs 120 (2.2%) against previous day’s close. Natural gas for July delivery closed at Rs 484.1/mmbtu, higher by Rs 13.2/mmbtu (2.8%)