Crude oil rose above $US127 a barrel for the first time, leading commodities higher, after Goldman Sachs raised its forecast and on speculation Chinese diesel purchases will strain supplies.
Goldman boosted its price estimate for the second half of this year to $US141 a barrel, from $US107, citing supply constraints. China may increase fuel imports to generate power after the most powerful earthquake in 58 years killed more than 22,000 and damaged hydroelectric plants. Oil and commodities, including gold and platinum, also advanced on the falling dollar.
''We can blame Goldman again,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA in New York. ''In March 2005 they predicted that prices would rise dramatically, and they did. Prices jumped to the $US125 level after another Goldman report less than two weeks ago. At this point nobody wants to bet against Goldman.''
Crude oil for June delivery rose $US2.17, or 1.7%, to settle at $US126.29 a barrel at 2.50pm on the New York Mercantile Exchange, a record close. Futures touched $US127.82 today, the highest since trading began in 1983. Prices are up 0.3% for the week and have more than doubled in the past year.
Prices fell from the day's high after Saudi Arabia's oil minister, Ali al-Naimi, said his country will increase crude oil production by 300,000 barrels a day to 9.45 million barrels a day next month in response to customer requests. President George W. Bush met in Riyadh today with al-Naimi and King Abdullah.
Saudi Arabia is the world's largest oil exporter and the most influential member of the Organization of Petroleum Exporting Countries.
The dollar fell against the euro amid speculation the US economy will remain weaker than in the 15 nations using the euro. The dollar decreased 0.9% to $US1.5583 per euro at 3.17pm in New York, from $US1.5448 yesterday.
The falling dollar and higher world demand for raw materials led to records for gold, corn, soybeans and rice this year. The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, rose 1.1% to 1560.52 today. The index is up 38% from a year ago.
''Even if there is a slowdown in growth, demand for oil will continue to grow while supply is stagnating,'' Total chief executive Christophe de Margerie said at the company's annual meeting in Paris today. ''High costs of energy are due only in small part to speculation and are largely based on fundamentals.''
West Texas Intermediate, the benchmark oil grade traded in New York, will rise to $US135.30 in the third quarter and $US145.60 in the fourth quarter, Goldman said. Prices will increase further in 2009, averaging $US148 a barrel, according to the report written by analysts including Peter Oppenheimer and Jeffrey Currie.
Goldman analyst Arjun N. Murti wrote in a report on May 6 that ''the possibility of $US150-$US200 per barrel seems increasingly likely over the next six-24 months.'' Murti first wrote of a ''super spike'' in March 2005, predicting crude may trade between $US50 and $US105 a barrel through 2009.
''The Goldman report gives fund managers an excuse to push prices higher,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global in New York.
Hedge-fund managers and other large speculators increased their net-long positions in New York crude-oil futures in the week ended May 13, according to Commodity Futures Trading Commission data released after floor trading ended today. Longs have outnumbered shorts since February 2007. Long positions are bets that prices will rise and shorts are bets they will fall.
Brent crude oil for July settlement rose $US2.36, or 1.9%, to $US124.99 a barrel on London's ICE Futures Europe exchange, a record close. The contract touched an all-time high of $US126.34 today.
PetroChina International, the trading unit of PetroChina Co., the country's biggest oil producer, has already purchased 2.9 million barrels of diesel for June. That's in addition to the 1.45 million barrels that China International United Petroleum & Chemicals bought for the month.
''People are really focused on China right now,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. ''When a market moves on such minute data points, it is usually near some sort of inflection point. I think once we move from the June to July contact and we get evidence of weak Memorial Day demand, the market will become more rational.''
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