London, May 19: Oil prices eased on Tuesday from 21-year highs but analysts said surging fuel demand and oil’s enduring popularity with speculative hedge funds was likely to hold US crude above $40 a barrel for the time being. US light crude futures eased 35 cents to $41.20 a barrel after peaking at $41.85 a barrel on Monday, the highest price since the New York Mercantile Exchange launched the contract in ’83. London Brent crude slipped 38 cents to $37.53. Strong world economic growth and low oil inventories in the West have sown doubts as to whether producers and refiners will be able to crank up output to meet galloping demand for motor fuels, especially in the US, where demand peaks in the summer as motorists take to the roads for vacations. Coupled with the extra impetus of the potential for supply disruptions in the turbulent Middle East, hedge funds have bought heavily into oil, pushing up US crude 27% so far this year. Gasoline prices are up almost 50% since the end of ’03. “The ongoing attraction of oil for the investment funds is supply insecurity,” said independent London energy consultant Geoff Pyne and added “Commodities such as copper and gold are off their peaks now that demand growth has run its course but oil has a special story of insecurity attached to it and that is going to keep driving it forward,” Pyne said.
Analysts say big-money fund managers view the energy market as a long-term investment rather than somewhere to make a quick buck. The rush into oil has been hastened by low US interest rates, anaemic equity indices and a weak dollar that make bond, equity and currency markets less attractive to investors. Serious doubts have also surfaced about Opec’s ability to significantly augment crude supply at a time when global demand growth is running at a 16-year high. The cartel is already pumping over two million barrels per day (bpd) above its official quota limits.
Bureau Report