- The Washington Times - Thursday, January 13, 2005


Crude oil futures surged to within striking range of $50 a barrel yesterday, though traders were split on where the market was headed next.

Some predicted the rally would continue, while others said the 14 percent run-up since the start of the year would induce enough profit-taking to push that milestone out of reach for the time being.

But as oil futures settled above $48 a barrel for the first time since Nov. 30, traders agreed on one thing: hedge funds have been a major factor in the market’s recent volatility and upward trend.

“It’s momentum trading,” said James Cordier, president of Liberty Trading Group in St. Petersburg, Fla.

Andrew Lebow, a senior vice president at Man Financial Inc. in New York, called the January rally “more psychological than fundamental.”

Traders were focused yesterday on short-term production snags in the North Sea, expectations of colder U.S. weather, the possibility of another OPEC output cut and the upcoming election in Iraq.

After climbing as high as $48.40 per barrel, light, sweet crude for February delivery settled $1.67 above Wednesday’s closing price at $48.04 per barrel on the New York Mercantile Exchange.

In London, Brent crude for February delivery rose $1.53 to $45.21 per barrel on the International Petroleum Exchange.

Tom Bentz, a broker at BNP Paribas Commodity Futures in New York, said he wouldn’t be surprised to see $50 a barrel — and even the late-October high above $55 a barrel — surpassed in the weeks ahead.

Mr. Bentz said the market likely would need a significant spark to get there, such as extremely cold weather or sabotage in Iraq that disrupts large volumes of oil exports.

Or maybe traders would just ride the momentum on the theory that global demand remains strong and the supply cushion is thin enough that any serious production snags could cause problems.

“The trend is my friend,” Mr. Bentz said, quoting a popular phrase among traders.

Despite the steam the market appears to be gaining, Mr. Cordier said he believes prices have become a little frothy and that companies that produce oil will soon be looking to sell in order to lock in profits.

“That will overwhelm the speculative buying,” Mr. Cordier said.

Mr. Lebow said the so-called fear premium now embedded in the price of oil is somewhere between $10 and $15 a barrel and that some of the uncertainty in the market should be removed by the end of the month, following the Iraqi election and the next meeting of the Organization of Petroleum Exporting Countries.

Analysts are worried that OPEC, which trimmed its output by 1 million barrels a day beginning this month, might decide on further production cuts at its next meeting in Vienna on Jan. 30. If prices stay at these levels, though, such action would seem unlikely.

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