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Oil prices soar above $133 on US supply drop

(Xinhua)
Updated: 2008-05-22 08:22

NEW YORK -- Oil prices shattered record highs and soared above 133 U.S. dollars a barrel Wednesday after a report showed an unexpected drop in the U.S. crude stockpiles.

A worker wipes the price display board at a gasoline station in Manila May 21, 2008. [Agencies]

Light, sweet crude for July delivery rose 4.19 dollars to settled at 133.17 dollars a barrel on the New York Mercantile Exchange (NYMEX), trading up 4.19 dollars, the largest one-day price advance since March 26. But prices continued to rise as high as 133.82 dollars a barrel in the after-hour electronic trading.

In London, Brent crude for July delivery rose 4.86 dollars to close at 132.70 a barrel.

Unexpected inventory drop

The U.S. Energy Department's Energy Information Administration (EIA) released its weekly report Wednesday, saying that crude inventories fell 5.32 million barrels to 320.4 million barrels last week, the biggest drop in four months. Analysts had expected crude oil stocks to be up 900,000 barrels, according to a survey from Platts, an energy research firm.

Prior to the report which was out at 10:30 a.m. local time (1430 GMT), crude futures on NYMEX was down 29 cents to 128.69 dollars a barrel.

"The price of oil is being driven by rising demand and worries that current supplies are not going to be sufficient to meet this demand," Wall Street Strategies' senior research analyst Conley Turner told Xinhua. "In reality, however, it is almost a frenzy that is being validated by the various oil related data points being released."

Today it is the EIA report, tomorrow it may be some geopolitical event, Turner added.

Bullish oil remains

"It is very possible that we can see 150 dollars before the end of this year," Turner predicted, "If this pace continues, we can reach that milestone by summer's end."

The June contract expired Tuesday with crude settling at the then record high of 129.07 dollars a barrel, up 2.02 dollars from Monday's settling price of 127.05 dollars a barrel. Crude oil prices have more than doubled in the past year.

"We remain bullish on oil and oil stocks for the long term, but at this point, it is very clear that there is a significant among of speculative money driving this trade," said Turner. "The path of least resistance for prices is higher and it will keep going up until it does not!"

U.S. billionaire hedge-fund manager Boone Pickens told CNBC on Tuesday that oil will reach 150 dollars a barrel this year because the global supply can not meet the demand. Goldman Sachs raised its average oil price forecast for the second half of this year to141 dollars from 107 dollars a barrel on Friday.

Goldman, the most active investment bank in the energy market, also predicted earlier that supply shortage will send oil prices to 200 dollars a barrel within two years.

"Standing in front of this train is perhaps not the best trading strategy as capital can be lost very quickly for those market participants looking to time a reversal of this trend," said Turner, adding that this is a poignant example of the famous quote that "the market can remain irrational longer than you can remain solvent."