Wednesday, January 2, 2008

OIL HITS $100/BBL






NYMEX crude Feb. Futures hit an intra-day record high of $100/bbl at a little over 11:00 PM IST. This comes in the wake of a militia attack on Nigeria - Africa's largest oil producer - and weak US data.

Now, ordinary economic conditions, like those in the 1970s, say that higher oil prices will lead to an economic slowdown, which in turn will lead to a fall in oil prices: it's a cycle. However, analysts say this might not happen: and the reason is, well, mainly because of India and China. While these emerging markets continue to grow at 9% and 12% respectively, growth in the US and the EU is slowing down. This disparity could push oil prices even higher. And the brunt would have to be shared by all.

US Light Sweet Crude (US@CL.1) was up over 3% when this article was being written. It was over $99/bbl. This will increase inflationary concerns in an already-troubled US economy, which may deter the Fed from further lowering rates.

The Indian Government could hold a rate hike for a bit, since crude is never bought at spot. This intra-day high - taking place in the first trading session of 2008 - would show its effect only in February. However, Jan. Futures were also at record levels. How long can oil bonds keep fueling India's oil fetish, and how long those fools the CPM can keep blocking the Nuclear Deal, only time will tell.

Meanwhile, Iran, Russia and OPEC can expect great political gains from this oil surge, while the US needs to critically re-assess its oil-dependency. Also, many analysts say oil is like the next giant bubble. When it pops, they say, oil could fall to $50/bbl. Lets keep our finger crossed...

OTFS Business Desk
CNBC Report

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