/ 7 January 2008

Oil prices ease further from $100 level

World oil prices eased further from the historic $100-a-barrel level on Monday after weak US employment data fanned worries about recession and demand in the world’s biggest energy consumer, dealers said.

In afternoon trade, New York’s main contract, light sweet crude for delivery in February, was 71 cents lower at $97,20 a barrel.

The contract had dropped $1,27 to close at $97,91 a barrel in Friday trading on the New York Mercantile Exchange.

Brent North Sea crude for February was down 51 cents at $96,28 a barrel.

Lacklustre US jobs data on Friday triggered profit taking after oil prices touched record highs of $100 a barrel for two straight days.

On Thursday, the benchmark New York contract hit $100,09 and Brent touched $98,50 during intraday trade.

The president of the Opec oil-producers’ cartel said Sunday that $100 a barrel is “not necessarily very high” given demand and higher production costs.

Chakib Khelil, who is also the Algerian Energy Minister, added over the weekend that the current surge in prices is likely to continue through the first quarter.

“Concern about the US economy has weighed down on the US market, resulting in a drop of oil prices from the highs last week. The US employment report is certainly placing pressure on the demand for oil,” said Victor Shum, senior principal at Purvin and Gertz international energy consultants in Singapore.

The US Labour Department reported the US economy gained 18 000 non-farm jobs in December, the slowest job creation since 2003. The unemployment rate rose to 5%, the highest in more than two years.

The surprisingly weak report was a fresh warning flag of a slowing economy and prompted speculation that the US Federal Reserve would lower interest rates again, after a combined one percentage point reduction since September.

Khelil told Agence France-Presse that the current oil price surge must be seen “in relation to the real price”, that is, taking into account inflation.

The current oil price was therefore below its 1980 record of “between $102 and $110 depending on estimates”, he said.

Sucden analyst Andrey Kryuchenkov noted a combination of declining inventories, a weak dollar, soaring oil demand from Asia and geopolitical risks had helped to propel crude prices to $100.

Shum added another factor: the high numbers of speculative investors buying commodities.

“It is true that the weak US economy has attracted US investors into commodities, oil included. It is a combination of actors that has brought us to the levels we are at today,” Shum said.

He agreed oil prices should ease after the first quarter when the Northern hemisphere winter ends but in the meantime, a rebound to record highs is possible.

“The possibility of prices rebounding to the 100 mark is always there, with the overall market sentiment still bullish,” Shum said. – AFP