Oil Rises After Morgan Stanley Says Brent Oil May Reach $150

May 28 (Bloomberg) — Crude oil rose more than $2 a barrel after Morgan Stanley said that Brent oil from the North Sea could “easily” reach $150 a barrel.
Prices are rising because “supply constraints are biting against the backdrop of still-strong global demand,” Richard Berner , co-head of global economics at Morgan Stanley, said in a report today. Oil rose last week after Societe Generale SA and Credit Suisse increased their price outlooks.
“When these price forecasts come out, traders don’t want to be short, so they are in a way self-fulfilling prophecies,” said Sarah Emerson , managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. Shorts are bets that prices will fall.
Crude oil for July delivery rose $2.18, or 1.7 percent, to settle at $131.03 a barrel at 2:51 p.m. on the New York Mercantile Exchange. Oil climbed as high as $131.58 and fell as low as $125.96 today. Futures reached $135.09 on May 22, the highest since trading began in 1983.
“Prices are swinging wildly back and forth, which indicates that the market needs to find equilibrium,” said Kyle Cooper , director of research at IAF Advisors in Houston.
Brent crude oil for July settlement rose $2.62, or 2 percent, to settle at $130.93 a barrel on London’s ICE Futures Europe exchange. The contract touched a record $135.14 on May 22.
Oil advanced above $127 for the first time on May 16 when Goldman Sachs Group Inc. boosted its estimate for the second-half of the year to $141 a barrel, from $107, citing supply constraints. Goldman analyst Arjun N. Murti wrote in a report on May 6 that “the possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.”
$150 Brent
“While prices are high enough to curb demand in the developed economies, we think that supply limits could easily take Brent crude quotes to $150 a barrel,” Berner, who is based in New York, said in the report. Morgan Stanley is the second- biggest U.S. securities company.
The Movement for the Emancipation of the Niger Delta, Nigeria’s main militant group, threatened attacks and car bombings tomorrow in the Niger Delta to mark the first anniversary of President Umaru Yar’Adua ’s inauguration.
MEND, which has shut down about 20 percent of Nigeria’s oil production since February 2006, has increased its assaults on the country’s oil infrastructure since April. Nigeria was the fourth- biggest source of U.S. oil imports during the first three months of this year, according to the Energy Department.
Dow Chemical Co ., the largest U.S. chemical maker, will raise prices on all of its products as much as 20 percent because of surging costs for energy, raw materials and transportation.
The increases are needed after a 42 percent jump in first- quarter spending on raw materials and energy, Chief Executive Officer Andrew Liveris said today in a statement. The increases take effect on June 1, Midland, Michigan-based Dow said.
Dow is trying to pass on higher costs amid company forecasts that spending on energy and hydrocarbon-based ingredients will climb to $32 billion this year, a fourfold increase from 2002

Dollar Bulls Gain Control as Futures Signal Euro Close to Peak

May 12 (Bloomberg) — For the first time since December 2005 , futures traders are turning bullish on the dollar.
The difference in the number of wagers by hedge funds and other large speculators on a gain in the greenback versus the euro, known as net longs, was 21,315 on April 29, figures from the Commodity Futures Trading Commission in Washington show. There were net-short positions in each of the previous 123 weeks. At the same time, traders have stepped up their purchases of options that profit from the dollar’s appreciation.
The measures are making long-suffering proponents of the dollar optimistic that this time the currency’s rally may hold, especially if the Federal Reserve’s Open Market Committee refrains from additional interest-rate cuts. The Dollar Index traded on ICE Futures in New York, which tracks the currency against six trading partners, is up 3.3 percent from an all-time low of 70.698 set on March 17.
“There is kind of a sea change taking place at the moment,” said Mitul Kotecha , head of foreign-exchange research in London at investment bank Calyon, whose forecasts on the euro-dollar exchange rate in the first quarter were more accurate than those of the two biggest currency traders. “It’s probably the early sign of perhaps a more sustained turnaround.”
The dollar has appreciated 3.4 percent to $1.5482 since dropping to $1.6019 per euro on April 22, the lowest since the European currency’s debut in 1999. By the end of the year, the dollar will strengthen to $1.50, according to the median estimate of 40 strategists surveyed by Bloomberg.
Gaining Traction
The dollar’s rebound gained traction last month after the Open Market Committee said “substantial” rate cuts since September would help foster growth. U.S. employers also eliminated fewer jobs in April than forecast by economists.
Meanwhile, a slide in business confidence in Germany and France, which account for about half the euro-region economy, renewed speculation the European Central Bank will reduce rates this year. An end to lower rates in the U.S. and the possibility of cuts in Europe raises the appeal of dollar-denominated assets.
“The recent shift to a neutral FOMC stance and from a very hawkish European Central Bank stance, together with U.S. data pointing to a stagnation rather than a deep contraction, have already contributed to the dollar’s rally,” said Marc Chandler , global head of currency strategy in New York at Brown Brothers Harriman Inc. Chandler said he expects the dollar to reach $1.44 per euro by year-end.
Rate Futures
Interest-rate futures on the Chicago Board of Trade show an 82 percent chance the Fed will keep its target unchanged at 2 percent when policy makers next meet on June 25, with the balance of the odds calling for a quarter-percentage point cut.
The ECB will lower its 4 percent main refinancing rate to 3.75 percent by the end of September and 3.50 percent by year- end, according to the median estimate of 31 economists surveyed by Bloomberg.
As declining home sales and mortgage losses curbed economic growth, investor sentiment grew so negative on the dollar that even longtime pessimists such as Jim Rogers , chairman of Rogers Holdings, say the U.S. currency is due to rebound.
“I expect a nice rally in the American dollar because so many have been bearish on the American dollar, including me,” he said on May 8 in Singapore. Rogers, who co-founded the Quantum fund with George Soros in the 1970s and correctly predicted the start of the commodities boom in 1999, cited the benefit of surging prices for U.S. agricultural products.
Contrarian Indicator
Futures can be viewed as a contrarian indicator because traders often rush to reduce positions when momentum in a currency shifts. The last time net longs were this high, in December 2005, the dollar was nearing the end of a one-year, 13 percent rally versus the euro. It weakened 11 percent in 2006 and depreciated by the same amount in 2007.
“It is more likely than not that reasons for speculators returning to selling the dollar will be greater than reasons for them to sell the euro,” said Derek Halpenny , head of global- currency research in London at Bank of Tokyo-Mitsubishi UFJ Ltd., who expects the euro to reach a record high within three months. “I see risk that the ECB doesn’t do anything this year and expect the Fed will ease again in 2008.”
Between May 2005 and the end of that year, futures traders were net long the dollar versus the euro 73 percent of the time. The U.S. currency gained 7.9 percent in that period.
Call Options
Net-short positions versus all currencies fell to $10 billion in the week ended April 29, from $22 billion in the prior period, according to CFTC data tracked by Morgan Stanley. Speculators had net-long bets on the dollar versus the pound and the euro. Hedge funds and other large speculators were net-short the euro for a second week in the period ended May 6.
In another bullish signal for the dollar, demand for one- month options that grant the right to sell the euro is greater than for those allowing for purchases. The so-called risk- reversal rate had a 0.44 percentage point premium for euro puts relative to calls on May 9.
As recently as March, demand for call options was greater than put options. On Jan. 28, the premium for euro calls reached 0.45 percentage point, the highest since April 2007.
“We may very well have seen the bottom in the dollar,” said Stephen Jen , the global head of currency research at Morgan Stanley in London, who forecasts the dollar will rise to $1.40 per euro by year-end. “The dollar has regained some traction lately. Against the euro, the U.S. dollar is around 25 percent undervalued.”

Oil Climbs Above $126 to Record as Dollar Weakens Against Euro

May 9 (Bloomberg) — Crude oil rose above $126 a barrel in New York to a record as the dollar weakened against the euro, prompting investors to buy commodities as a hedge against the currency’s decline.
For a fifth day oil climbed to all-time highs as the euro strengthened on signs the European Central Bank will keep rates at a six-year high to cut inflation. Nigerian output fell to the lowest this decade in April because of a strike and attacks on oil installations.
“Oil is a safe haven because of the weak dollar and how badly the financial sector has been doing,” said Michael Lynch , president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There are also geopolitical concerns about places like Nigeria and Venezuela that are propping prices up.”
Crude oil for June delivery rose $2.27, or 1.8 percent, to a record closing price of $125.96 a barrel at 2:55 p.m. on the New York Mercantile Exchange. The contract surged to $126.27 today, the highest since futures began trading in 1983. Prices are up 8.3 percent this week, the biggest weekly gain in more than a year. Futures have more than doubled in the past year.
Brent crude oil for June settlement climbed $2.56, or 2.1 percent, to close at a record $125.40 a barrel on London’s ICE Futures Europe exchange. The contract touched $125.90 today, the highest since trading began in 1988.
Oil at $200 is “possible if we have a continuing devaluation of the dollar with respect to other currencies,” OPEC President Chakib Khelil said yesterday at a press conference in Washington.
The dollar fell 9.6 percent since Sept. 18, when the Federal Reserve began cutting rates to ease financial-market strains and stave off a recession. The U.S. central bank cut rates seven times while the ECB has left rates unchanged. The dollar fell 0.6 percent to $1.5483 per euro at 3:27 p.m. in New York.
Fed Policy
“Fed policy is accommodating the rise in energy prices,” said Bill O’Grady , director of fundamental futures research at Wachovia Securities in St. Louis. “The Fed and federal government are putting more liquidity in people’s pockets, which is being spent on expensive oil.”
The U.S. government started sending $117 billion in tax rebate checks last week as part of its fiscal stimulus plan.
Goldman Sachs analyst Arjun N. Murti wrote in a report on May 6 that “the possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.” Murti first wrote of a “super spike” in March 2005, predicting crude may trade between $50 and $105 a barrel through 2009.
“There’s been a paradox, prices have surged over the last week while we’ve had bearish headlines,” said Nauman Barakat , senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. “Clearly there’s been a lot of fund buying on the back of Goldman’s super-spike repot. They were right on the nose last time.”
OPEC Meeting
The Organization of Petroleum Exporting Countries, the producer of more than 40 percent of the world’s oil, may meet before September to consider increasing output in an attempt to rein in record crude-oil prices, Libya’s Shokri Ghanem said.
“We would consider among other options the possibility of increasing output as a way to ensure market stability,” Ghanem, who is the chairman of Libya’s National Oil Corp., said in a telephone interview today from Tripoli.
Nigerian Petroleum Minister of State H. Odein Ajumogobia said today that there are no plans for an additional OPEC meeting because oil supplies are adequate.
OPEC kept its production target unchanged at its past three meetings. The group last increased its target on Nov. 1.
“OPEC loves high oil prices, but they also value an orderly market,” said Adam Sieminski , Deutsche Bank’s chief energy economist, in Washington. “It would not surprise me if they meet soon to discuss these issues.”
Lebanese Unrest
Gun battles raged across western and southern Beirut, leaving 10 people dead, as fighters from the Shiite group Hezbollah pressed their party’s challenge to Lebanon’s pro- Western government. Oil surged to a record $78.40 on July 14, 2006, on concern fighting in Lebanon between Israel and Hezbollah would spread through the Middle East.
“The unrest in Lebanon could be very important,” O’Grady said. “This could be an early indication of further violence in coming months.”
Gasoline and heating oil also touched records in New York on forecasts for increased fuel demand. An Energy Department report on May 7 showed that U.S. inventories of distillate fuel, a category that includes heating oil and diesel, fell last week.
Record Fuel Prices
Heating oil for June delivery climbed 12.62 cents, or 3.6 percent, to close at a record $3.636 a gallon in New York. The contract reached $3.6524 today, an all-time high. Some traders use heating-oil futures to hedge their diesel and jet-fuel purchases.
Gasoline futures for June delivery rose 6.34 cents, or 2 percent, to $3.2012 a gallon in New York after reaching a record $3.2038 today.
U.S. pump prices followed futures higher. Regular gasoline, averaged nationwide, rose 2.6 cents to a record $3.671 a gallon, AAA, the nation’s largest motorist organization, said today.