http://www.ft.com/cms/s/f85e7878-52fb-11db...00779e2340.html
By Tony Tassell and Chris Flood - Finalncial Times - October 3 2006
QUOTE
The Dow Jones Industrial Average, the US stockmarket barometer, reached an all-time intra-day high on Tuesday, lifted by a slide in oil prices to below $59 a barrel.
By midday the Dow Jones Industrial Average had gained 0.72 per cent 11,754.55, surpassing its previous intra-day trading peak of 11,750 reached in January 14, 2000.
The US stockmarket was boosted by a continuation of the dramatic recent slide in oil prices driven by expectations of rising inventories, falling demand and reduced fears of hurricane damage to industry facilities.
West Texas Intermediate, the US oil benchmark, dropped to a low of $58.84 a barrel before rallying to $59.20, still $1.83 down on the day and the lowest level since February.
WTI prices have now fallen nearly $4 since Friday and have dropped 24.5 per cent from its peak of $78.40 in mid-July.
Brent crude, the UK benchmark, also fell $1.81 to $58.63 barrel. It is down 25.5 per cent from its peak of $78.65 touched in August.
Prices were hit by speculative selling ahead of the release of data on Wednesday on US energy product inventories that are expected to show increases in stockpiles of distillate fuels and gasoline.
In addition, fears over hurricane disruptions to supply receded further. The Colorado State University, an influential weather forecaster, predicted a milder Atlantic hurricane season will produce just two more tropical storms and no more “major” hurricanes.
The US Energy Department also allayed supply concerns by announcing late on Monday it will again delay replacing the 11m barrels of crude oil that it sold last year from strategic stockpiles to oil companies in the wake of Hurricane Katrina to ease market shortages. It added purchases will be held off through the coming winter heating season to keep more supplies on the market.
Merrill Lynch also warned a warm winter could send WTI oil temporarily below $50 a barrel. It said even the Organisation of the Petroleum Exporting Countries might not be able to prevent a price collapse as non-OPEC producers were likely to bring a significant amount of new supplies on stream in coming months.
However, it added: “Equally a cold winter could bring about a spike in heating oil prices despite the high inventory levels.”
Barclay Capital said although the speculative overhang of long positions – those betting on rising prices – had been almost fully cleared from the very high levels seen in early August, the market continued to look weak and this had encouraged selling by momentum traders.
In addition, mixed messages from Opec on recent production cuts had done little to help market sentiment.
“We continue to see oil prices as having overshot to the downside from a fundamental perspective but acknowledge in the short-term at least, there is risk of further moves to the downside,” it said.
Crude oil prices will average $64 a barrel in New York in 2007, according to the median forecast of 29 analysts surveyed by Bloomberg last week.
The oil price slide provided support for shares on Wall Street. By midday on Wall Street, the S&P 500 index was up 0.49 per cent to 1,337.80 while the Nasdaq Composite was 0.64 per cent higher at 2,251.73.
In Europe, the more energy-intensive stockmarket was hit by the oil price weakness. The FTSE Eurofirst 300 index fell 0.29 per cent to 1,392 while the FTSE 100 declined 0.35 per cent in the UK.
Norway’s stockmarket benchmark, the OBX Index, which is heavily to the oil sector, lost 2.3 per cent, to 301.67. Similarly in the commodity-heavy Toronto stockmarket, the key S&P/TSX composite index was trading 1.6 per cent lower at 11,600 at midday.
By midday the Dow Jones Industrial Average had gained 0.72 per cent 11,754.55, surpassing its previous intra-day trading peak of 11,750 reached in January 14, 2000.
The US stockmarket was boosted by a continuation of the dramatic recent slide in oil prices driven by expectations of rising inventories, falling demand and reduced fears of hurricane damage to industry facilities.
West Texas Intermediate, the US oil benchmark, dropped to a low of $58.84 a barrel before rallying to $59.20, still $1.83 down on the day and the lowest level since February.
WTI prices have now fallen nearly $4 since Friday and have dropped 24.5 per cent from its peak of $78.40 in mid-July.
Brent crude, the UK benchmark, also fell $1.81 to $58.63 barrel. It is down 25.5 per cent from its peak of $78.65 touched in August.
Prices were hit by speculative selling ahead of the release of data on Wednesday on US energy product inventories that are expected to show increases in stockpiles of distillate fuels and gasoline.
In addition, fears over hurricane disruptions to supply receded further. The Colorado State University, an influential weather forecaster, predicted a milder Atlantic hurricane season will produce just two more tropical storms and no more “major” hurricanes.
The US Energy Department also allayed supply concerns by announcing late on Monday it will again delay replacing the 11m barrels of crude oil that it sold last year from strategic stockpiles to oil companies in the wake of Hurricane Katrina to ease market shortages. It added purchases will be held off through the coming winter heating season to keep more supplies on the market.
Merrill Lynch also warned a warm winter could send WTI oil temporarily below $50 a barrel. It said even the Organisation of the Petroleum Exporting Countries might not be able to prevent a price collapse as non-OPEC producers were likely to bring a significant amount of new supplies on stream in coming months.
However, it added: “Equally a cold winter could bring about a spike in heating oil prices despite the high inventory levels.”
Barclay Capital said although the speculative overhang of long positions – those betting on rising prices – had been almost fully cleared from the very high levels seen in early August, the market continued to look weak and this had encouraged selling by momentum traders.
In addition, mixed messages from Opec on recent production cuts had done little to help market sentiment.
“We continue to see oil prices as having overshot to the downside from a fundamental perspective but acknowledge in the short-term at least, there is risk of further moves to the downside,” it said.
Crude oil prices will average $64 a barrel in New York in 2007, according to the median forecast of 29 analysts surveyed by Bloomberg last week.
The oil price slide provided support for shares on Wall Street. By midday on Wall Street, the S&P 500 index was up 0.49 per cent to 1,337.80 while the Nasdaq Composite was 0.64 per cent higher at 2,251.73.
In Europe, the more energy-intensive stockmarket was hit by the oil price weakness. The FTSE Eurofirst 300 index fell 0.29 per cent to 1,392 while the FTSE 100 declined 0.35 per cent in the UK.
Norway’s stockmarket benchmark, the OBX Index, which is heavily to the oil sector, lost 2.3 per cent, to 301.67. Similarly in the commodity-heavy Toronto stockmarket, the key S&P/TSX composite index was trading 1.6 per cent lower at 11,600 at midday.