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Crude oil jumped $1.85 in early trading Monday morning to touch a record $107 per barrel as investors continued to pour funds into oil futures, Bloomberg News reported Monday. Oil traded at the record price before pulling back slightly to $106.31 by midday Monday. Heating oil gained 1 cent to $2.96 per gallon, unleaded gasoline was unchanged at $2.69 per gallon.
With U.S. stocks expected to underperform historical averages due to sluggish U.S. economic growth, and with global oil demand still strong, investors are increasing positions in oil, calculating that the world's most vital commodity will outperform other asset classes in 2008. Oil is up about 75% during the past 12 months, and has traded above $90 per barrel for most of 2008.
Further, the weak and falling U.S. dollar is also boosting oil prices. Because oil is priced in dollars, if the dollar falls, oil producers will try to increase the price of the product to maintain their purchasing power. A lower dollar also implies higher U.S. inflation, prompting some investors to buy oil as an inflation hedge, further boosting the commodity's price.
Analysts raise estimates
Given oil's bullish price characteristics, several analysts and investment banks have revised their oil price predictions, The Wall Street Journal reported Monday. Mark Waggoner, president of Excel Futures in Huntington Beach, California, sees oil heading to $120 by June 2008. Lehman Brothers recently increased its Q1 2008 benchmark price to $93 from $86. And last week, Goldman Sachs suggested that oil prices will keep rising until demand declines globally on a multi-year basis, resulting in the return of excess capacity and a lower cost structure. Goldman's 'super-spike' price for oil? $200 per barrel, The Journal reported.
Oil Analysis: U.S. gasoline inventories are rising, the northern hemisphere's heating season is winding down, and there is no shortage of oil globally, but no matter for the oil market. Currently, the oil market is largely discounted from inventory fundamentals and U.S. demand characteristics, and is ramping higher on oil-as-asset grounds: $110 per barrel is oil's next hurdle.
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