1.

Market & Stocks

OIL HITS ANOTHER RECORD, ABOVE $60
By Jonathan Leff

** Undeterred by high fuel costs, strong U.S. demand drives crude to fresh highs **

Reuters
June 27, 2005

http://www.reuters.com/financeNewsArticle.jhtml?type=businessNews&storyID=8899245
or
http://money.cnn.com/2005/06/27/markets/oil.reut/
or
http://www.detnews.com/2005/autosinsider/0506/27/0auto-229319.htm

SINGAPORE -- Oil prices jumped one percent Monday to move above $60 a barrel, a record, as robust U.S. demand, apparently unimpeded by high fuel costs, strained global production and refining capacity.

Light sweet crude for August delivery rose 38 cents to $60.32 a barrel in electronic trading, easing from a new record high at $60.49 hit earlier in the morning. Monday's new record extends a rally that has increased prices 12 percent in two weeks and 39 percent since January.

U.S. crude contracts are trading above $60 for every month until August 2006, with December 2005 hitting a peak $61.90 a barrel. London Brent crude gained 49 cents to $58.85 after hitting a record $59.17 a barrel earlier in the session.

"It really has been a momentum-driven push to $60 over the past week. We've seen the funds really pile in hard in an effort to push it over (that level)," said Daniel Hynes, resource analyst at ANZ Institutional Banking.

Prices have risen as investors bet refiners and producers will struggle to meet winter demand in the fourth quarter.

While high prices are eroding some strength from the world economy, the overall growth picture remains solid, central bankers meeting in Switzerland said at the weekend.

This has encouraged speculators to test consumers' ability to absorb higher costs, with some analysts saying only a significant pull-back in demand from an economic slowdown will tame prices.

"The market is testing higher to see what price levels this demand can endure," said Naohiro Niimura, vice president at the derivative products division of Mizuho Corporate Bank.

Central bank governors and monetary officials gathering in the Bank for International Settlements for an annual meeting on Monday have said oil prices are expected to remain high for some time.

"The world economy today is less energy intensive than before. That's why despite the big increase in prices, we didn't find big inflation in the world economy. We still have growth and inflation is under control," Jassim Al-Mannai, director general chairman of the board of the Arab Monetary Fund, said Monday.

Al-Mannai said he expects oil prices to stay in a range between $50 and $60 per barrel all year.

"Cheap oil is no longer there," Al-Mannai said.

Victory in Iran's presidential election for ultra-conservative Mahmoud Ahmadinejad also helped support prices.

Ahmadinejad said he would flush out corruption from the country's oil sector and favor domestic investors, although analysts do not expect a big shift in production policy.

Held back by U.S. sanctions, OPEC member Iran has struggled to lift output capacity in the world's fourth biggest producer.

The Iranian president-elect also said his nation would press ahead with its controversial nuclear program, which the United States sees as part of an effort to build atomic weapons.

Dealers were undeterred by OPEC's largely symbolic output hike earlier this month, and now producers are consulting on another increase, cartel president Sheikh Ahmad al-Fahd al-Sabah said Saturday.

But another increase of 500,000 barrels per day is unlikely to make much difference. Traders say it is a shortage of refining capacity, not crude, that is driving prices higher. And Saudi Arabia, the only OPEC producer with any spare capacity, says it is already meeting customer demand for crude.

[Click here for CNN/Money's special report: "Oil Crunch 2005."]

2.

OIL BOILS OVER AS IRAN STIRS POT
By Nesa Subrahmaniyan and Angela MacDonald-Smith

The Age (Australia)
June 27, 2005

Original source: The Age (Australia)

Crude oil rose to a record in New York after Iran, the Organization of Petroleum Exporting Countries' second-largest producer, elected a president who promised to pursue the country's nuclear power program, increasing tension with the U.S.

"It's Iran's right" to develop nuclear energy, President-elect Mahmoud Ahmadinejad said yesterday. Mr. Ahmadinejad, a founder of the group that stormed the U.S. embassy in Iran in 1979, has rejected talks with the US, which accuses Iran of seeking to develop nuclear weapons.

"This is one other thing that you don't need when there's no slack in the system," said Anthony Nunan, manager of international petroleum business at Mitsubishi Corp, Japan's biggest trading company. "The U.S. will probably put pressure on Europe and Japan to withhold investments," in Iran's oil industry.

Crude oil for August delivery rose as much as US63¢, or 1.1 per cent, to $US60.47 a barrel in after-hours electronic trading on the New York Mercantile Exchange.

European Union monetary affairs commissioner Joaquin Almunia said over the weekend that the European Commission might lower its 2005 growth forecast for the third time in eight months if the cost of oil stayed at $US60 a barrel. .

On Friday, oil rose US42¢, or 0.7 per cent, to $US59.84 a barrel, the highest closing price for a contract closest to expiration since trading began on the exchange in 1983.

Mr. Ahmadinejad, who won the presidential election on Saturday, said he would give domestic companies priority in developing the oil and gas industry. That may slow efforts to boost Iran's oil output at a time when oil producers are straining to boost supplies, Mitsubishi's Mr. Nunan said.

U.S. crude-oil stockpiles have dropped for three weeks in a row, raising concern that producers won't keep pace with refiner needs. Finance ministers from the EU and Asia have called on OPEC to boost production, saying higher prices pose a threat to global growth.

Oil prices could rise to $US100 a barrel in New York if instability continues in producing countries such as Iraq and Nigeria, Algerian Oil Minister Chakib Khelil said, according to the Saudi newspaper Okaz. Political instability will have an impact on oil output even if OPEC boosts its capacity in the next two to three years, he said.

Concern that rising oil prices may threaten global growth prompted OPEC on June 15 to raise quotas for a fifth time in a year to 28 million barrels a day. The group is considering adding an extra 500,000 barrels a day.

--Bloomberg

3.

CRUDE OIL RISES TO RECORD AMID CONCERN OUTPUT WON'T MEET DEMAND
By Angela Macdonald-Smith

Bloomberg News
June 27, 2005

http://quote.bloomberg.com/apps/news?pid=10000006&sid=a6j2S47RZuw8&refer=home

SYDNEY -- Crude oil rose to a record in New York on concern that oil producers and refiners will strain to boost output to meet surging demand for fuel.

Iran and other OPEC members are pumping oil at "the highest possible level" and can't increase production to meet rising global consumption, Iranian Central Bank Governor Ebrahim Sheibany said yesterday.

"The rally is being demand-driven, running up against capacity constraints," said Tobin Gorey, an economist at Commonwealth Bank of Australia in Sydney. "It won't take many supply disruptions for things to get quite tight, quite quickly."

Crude oil for August delivery rose as much as 63 cents, or 1.1 percent, to $60.47 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded at $60.40 a barrel at 11:41 a.m. Sydney time.

On June 24, oil rose 42 cents, or 0.7 percent, to $59.84 a barrel, the highest closing price for a contract closest to expiration since trading began on the exchange in 1983. The contract rose 66 cents, or 1.1 percent, last week.

Brent crude for August delivery rose as much as 68 cents, or 1.2 percent, to $59.04 in after-hours trading. It traded at $58.95 a barrel at 11:35 a.m. Sydney time.

In a weekly Bloomberg survey, 24 of 50 analysts and strategists surveyed, or 48 percent, said oil prices will rise this week. Sixteen, or 32 percent, said they will fall, and 10 forecast little change.

INVENTORIES

U.S. crude-oil stockpiles have dropped three weeks in a row, raising concern that producers won't keep pace with refiner needs as they make gasoline for summer travel and store heating oil for winter. Demand for oil-based fuels in the past four weeks was 1.7 percent higher than a year earlier, the U.S. Energy Department said June 22.

Organization of Petroleum Exporting Countries, source of 40 percent of the world's oil, will probably ship less in the four weeks ending July 9, according to Oil Movements, a company that tracks tanker movements.

The producer-group is scheduled to ship 24.2 million barrels a day in the four weeks ending July 9, down 60,000 barrels from the previous four weeks, Halifax, U.K.-based Oil Movements said in a report June 23.

European Central Bank President Jean-Claude Trichet, Bank of Japan Governor Toshihiko Fukui, and Federal Reserve Governor Edward Gramlich may today warn about the impact of record oil prices on world economic growth. Central bankers are attending the annual meeting of the Bank for International Settlements, which is controlled by 55 of the world's largest banks.

RISKS

"For the time being that might be the biggest risk," Fukui told reporters in Basel, Switzerland, yesterday. High oil prices are also a risk for Japan, he said.

Japanese stocks fell today after oil rose, with exporters such as Sony Corp. and Toyota Motor Corp. leading the drop.

"The record oil price is a sentiment-damper that makes investors risk averse," said Atsushi Osa, who helps manage more than $100 billion at Sumitomo Mitsui Asset Management Co. in Tokyo.

Finance ministers from the European Union and Asia have called on OPEC to boost production, saying higher prices pose a threat to global economic growth. The European Commission may lower its 2005 growth forecast for the third time in eight months if the cost of oil stays at $60 a barrel, European Union Monetary Affairs Commissioner Joaquin Almunia said June 25.

OPEC

Today's rally may have been driven by orders fixed earlier to buy oil if it rose above $60 a barrel by traders who use charts to make trading decisions, said Ashok Sekar, senior client adviser at Tricom Futures Services Pty in Surfers Paradise, Australia.

"Ever since we opened on Nymex this morning, we've had some heavy volumes coming through," Sekar said. "For today I think the market will be fairly comfortable trading above $60."

Oil prices could rise to $100 a barrel in New York if instability continues in producing countries such as Iraq and Nigeria, Algerian Oil Minister Chakib Khelil said, according to the Arabic-language Saudi newspaper *Okaz* on June 25. Political instability will have an impact on oil output even if OPEC boosts its capacity in the next two to three years, Khelil said.

IRAN

Concern that rising oil prices may threaten global growth prompted OPEC on June 15 to raise quotas for a fifth time in a year to 28 million barrels a day. The group is considering adding an extra 500,000 barrels a day if prices stay above $50.

Iran, OPEC's second-biggest producer, will give domestic companies priority in developing the oil and gas industry, Mahmoud Ahmadinejad, who won the presidential election June 25, said yesterday at his first press briefing as president elect.

4.

SUPPLY CONCERNS SEND OIL PRICES OVER $60 PER BARREL

Telegraph (UK)
June 27, 2005

Original source: Telegraph (UK)

Drivers face another price hike at the petrol pumps after a barrel of crude oil reached record highs.

Crude hit a record price of $60.47 on the New York Mercantile Exchange as a result of concerns about supply.

The election of an ultra-conservative president in Iran, Mahmoud Ahmadinejad, who favors nationalizing the industry and particularly high current demands from the U.S. and developing countries sent prices sky high.

Only last week the price of a barrel breached the psychological $60 mark resulting in the average cost of a liter of unleaded petrol in Britain hitting a new high of more than 86p.

The latest increase means oil prices are now more than 60 per cent higher than last year, but they have yet to reach the historic inflation-adjusted high of $90 a barrel 25 years ago.

The rise comes amid renewed speculation that output will be insufficient to cope with any disruption to production. Experts also warn that the U.S. has a limited refining capacity.

Stock markets reacted badly to the latest crude increase. On the International Petroleum Exchange, Brent for August delivery rose 44 cents to $58.80 a barrel.

In London, the FTSE 100 Index struggled for a second session in a row.

British Airways, having already raised its fuel levy for the fourth time on Friday, was hit by the oil price hike. The airline saw its shares slip 2 per cent lower by more than 20 points. Industrial firm BPB suffered a similar loss.

Matt Buckland, a trader for deal4free.com, said: "It's starting to look increasingly as if the $60 level may be sustainable. If this proves to be the case, then stocks are set to struggle across the board."

In addition to higher petrol prices, consumers face larger energy bills after Centrica, owners of British Gas, warned last week that increased bills were "necessary" to help protect profits.

5.

Business

Today's Top Stories

PUSH PAST $60-A-BARREL BARRIER FUELS FEAR OF PRICE HIKES
By Jim Stanton

Scotsman
June 27, 2005

http://business.scotsman.com/index.cfm?id=708502005

The price of oil hit a record high of $60.58 a barrel today, heightening fears that petrol prices and household energy bills could soar.

And dealers suggest tight market conditions could continue for at least another year, putting pressure on the world economy as supply strains grow.

Much of the price pressure driving oil to today’s new high has come from the combined forces of voracious U.S. demand and speculators continuing to bet on more price increases.

Traders are also trying to factor into prices the weekend election victory in Iran -- the world’s fourth-biggest producer -- by the ultra-conservative Mahmoud Ahmadinejad.

The price of a barrel of U.S. light sweet crude for August delivery was up by around one per cent to $60.58 -- the highest price ever seen on the New York Mercantile Exchange since trading began in 1983. And in London, Brent crude was up 56 cents at $58.92 a barrel -- also a new record.

Since the beginning of the year, the price of oil has increased by just under 40 per cent, with around 12 per cent of the rise coming in the past two weeks.

Last week, analysts forecast that the recent upward trend in oil prices would continue this week.

"It really has been a momentum-driven push to $60 over the past week. We’ve seen the funds really pile in hard in an effort to push it over that level," said Daniel Hynes, resource analyst at ANZ Institutional Banking.

Prices have soared as investors bet refiners and producers will struggle to meet winter demand in the U.S., the world’s biggest energy consumer. Over the past week, speculators have taken on almost 20,000 bets that further increases were on the cards. Victor Shum of Purvin & Gertz said: "There’s a lot of speculative activity. It is a red-hot market."

While high oil prices are sapping the global economy through high energy usage costs, central bankers meeting in Switzerland over the weekend took the view that the overall picture remains fairly solid. Some traders may interpret this as the green light to keep testing the ability of both domestic consumers and businesses to absorb higher costs.

But one analyst said: "Above these levels ($60), the negative impact on the global economy will lead to lower demand for oil and we will go to a bottom cycle."

Some analysts believe only a significant drop in demand will tame prices. Naohiro Niimura, vice-president at the derivative products division of Mizuho Corporate Bank, said: "The market is testing higher to see what price levels this demand can endure."

Crude oil contracts for delivery through next August are now all trading above $60 a barrel as dealers see tight market conditions running for at least another year, especially for distillate products such as heating oil and diesel.

Even a recent hike in output by the Organization of the Petroleum Exporting Countries (OPEC) is seen having little effect, as refiners struggle to increase capacity.

Nevertheless, Opec is mulling another increase in pumping, cartel president Sheikh Ahmad al-Fahd al-Sabah said on Saturday.

6.

Breaking News

OIL CLIMBS TO RECORD TERRITORY, HEADS FOR $61
By Myra P. Saefong

MarketWatch (Investor's Business Daily)
June 27, 2005

http://www.investors.com/breakingnews.asp?journalid=28608616&brk=1

SAN FRANCISCO -- Crude-oil futures climbed to a record early Monday, edging closer to $61 a barrel, with the rally fueled by strong demand and concern about tension in the Middle East after Iran elected a new president.

August crude climbed to $60.65 a barrel in New York, the highest intraday price for a front-month contract ever. Prices were last at $60.45, up 61 cents.

"The petroleum market is still floating to the upside" with doubt that OPEC will be able to supply more oil and concern about how Iran's new president may lead the country "helping to support market sentiment," Tim Evans, a senior analyst at IFR Markets, said in a note to clients.

Iran over the weekend chose Teheran mayor Mahmoud Ahmadinejad, considered an extreme conservative, as president, leading to concern that already strained Iran-U.S. relations could worsen.

He said during a news conference Sunday that Iran will continue its controversial nuclear program.

"The Iranian election was just enough to get the market over the $60 hump," said Phil Flynn, a senior analyst at Alaron Trading in Chicago, referring to Ahmadinejad as a "hardliner" whose election may "raise tension in the region."

But while the Iranian situation supports prices, oil "remains a demand-driven market," he said. "Demand over the [July 4] holiday could be at an all-time high, even though prices will be extremely higher."

Prices for petroleum products took their cue from the strength in crude to trade higher. July unleaded gas added 0.93 cent to $1.665 a gallon and July heating oil stood at $1.677 a gallon, up 2.66 cents.

REFINERY WOES

With demand holding strong, refinery capacity remains a worry for the market.

"The situation is grim, with refinery capacity and the condition of those refineries left in question," said Kevin Kerr, president of Kerr Trading International.

"Bottom line is that these facilities have been running full tilt for months, and the [chances] of a repair problem or major outage or even a catastrophe are not only likely but highly probable," he said.

Added to that, "if this week's inventory levels show dramatic declines, we could be looking at $63-$65 crude oil," he said.

NATURAL GAS DECLINES

Natural-gas prices bucked the trend in the energy markets to trade lower. July natural gas fell 7 cents to $7.29 per million British thermal units.

But IFR's Evans said he's take the current weakness in natural gas as a "buying opportunity."

"This week looks like it will be the heaviest for overall air conditioning demand yet, and that could prompt a swing higher again, especially if crude oil holds or rallies," he said.

In the equity market, the Philadelphia Oil Service Index ($OSX) gained ground.

In metals futures, gold edged lower but remained above $440 an ounce. See Metals Stocks.

The Reuters/CRB index, a broad measure of commodity futures markets, was up 0.2 percent at 312.9 points.