New global forecast leads to spike in oil prices

by Veronique Dupont
NEW YORK - Crude oil prices resumed their upward trend Friday after the International Energy Agency predicted global demand in 2005 would be stronger than earlier forecasts.
New York's main contract, light sweet crude for delivery in April, gained 89 cents to 54.43 dollars a barrel in closing deals.
In London, the price of Brent North Sea crude oil for delivery in April added 44 cents to close at 53.10 dollars.
Prices nonetheless remained more than one dollar below levels reached Wednesday, when New York futures came within three cents of beating last October's record high of 55.67 dollars, and London crude shot up to a historic 54.30 dollars.
The IEA said it expects demand growth of 2.2 percent -- or 1.8 million barrels per day -- from its previous forecast of a 1.8 percent increase.
The report said demand for oil in 2005 would be 330,000 barrels per day higher than expected because of cold weather, expected robust growth in the United States and consumption in China.
The agency raised its estimate for global oil demand in 2005 to 84.3 million barrels per day.
It revised upwards its estimate of global demand for oil from OPEC this year by 200,000 barrels per day to 28.6 million barrels. That was half a million barrels more than the 2004 global demand figure of 28.1 million barrels.
Bill O'Grady, analyst at Edwards, added that the sharp rise in prices is being supported by "a steady influx of fresh money in the commodities market."
The analyst said that contrary to the view of some, "this is not speculation," but a shift by investors in the face of a weaker dollar and growing inflation fears.
"It looks like investors are going hold on to a portion of their assets in commodities," he said. "It's a growing trend. Commodities have been consistently strong performers."
But O'Grady added that the current level of prices remains out of whack with market fundamentals.
Earlier Friday, prices fell on profit taking following milder temperatures in the northern hemisphere, despite the release of the IEA report.
"There is a notable lag as the IEA numbers have come into line with what everybody thinks, and this has again brought a bullish impact to the market," PFC Energy analyst Jamal Qureshi said.
The report did not come as a surprise to the market, analysts said.
"It is no surprise. We expect the unexpected now," said Lee Elliott, analyst with GNI-Man Financial.

03/11/2005 22:30 GMT