By BRUCE STANLEY
The Associated Press
8/6/04

LONDON (AP) -- Crude futures soared briefly to new heights Friday on worries of a possible shortfall in crude supplies but later fell as many traders overcame their fears and cashed in with a wave of profit-taking.

Prices surged early in the day despite assurances from OPEC that it is prepared to raise daily oil output by more than one million barrels.

U.S. light crude for September delivery was at $43.98 a barrel, down 43 cents in midday trading from Thursday's record close of $44.41 on the New York Mercantile Exchange. The futures price peaked at $44.77 in electronic trading before easing later.

September contracts of North Sea Brent crude were at $40.84 in afternoon trading on London's International Petroleum Exchange, down 28 cents from the previous day's all-time high closing price of $41.12. Brent futures touched an intraday high of $41.39 earlier in the session. The contract has been traded on the IPE since June 1988.

Speculative buying and selling, rather than the hedging of physical contracts, accounts for the bulk of business on both exchanges. This preponderance of so-called paper trades has "absolutely" increased the volatility of oil prices, said Peter Gignoux, London-based oil adviser for GDP Associates in New York.

"There are things going on behind the scenes that are driving the oil prices, he said. "You've hit this iceberg of financial complexity where some players are caught short at these historic highs, and they've got to go out and cover their risk and pay record prices."

In a short sale, a trader agrees to sell a borrowed contract in hopes its price will fall before he must complete the deal.

Among the powerful psychological factors that have combined to help drive prices higher are uncertainty over crude supplies from the Middle East and fears of terrorism. Crude is now almost 40 percent more expensive than it was a year ago.

A fire at a Texas refinery and Russia's decision to revoke permission for beleaguered oil company Yukos to use previously frozen bank accounts to keep itself afloat have added to anxiety in energy markets. However, concerns about Yukos eased somewhat after a Moscow court ruled late Friday that bailiffs' seizure of one of the company's key subsidiaries was illegal.

Faced with mounting pressure to curb prices, the president of the Organization of Petroleum Exporting Countries backpedaled on Friday from comments he made earlier this week that the group couldn't immediately boost production.

"We are ready to add another 1.5 million barrels a day but will discuss it first during the next meeting in Vienna," Purnomo Yusgiantoro, who is also the Indonesian oil minister, told reporters in Jakarta. OPEC's current output is 30 million barrels a day.

OPEC oil ministers plan to meet in Vienna, Austria, on Sept. 14.

However, analysts seemed unimpressed by Purnomo's reassurances.

"Capacity is tight, even though OPEC says they can raise production by up to 1.5 million barrels a day," said Victor Shum, an analyst with Texas-based energy consultants Pervin & Gertz in Singapore.

"But that, too, is not immediate."

Mortgage Rates News, Mortgage News, Financial News