Oil at $80 pumps new life into loonie

If there’s really a looming slump in global demand, oil traders sure missed that memo.

Crude oil prices defied the dire warnings about a U.S.-led slowdown and soared to a record yesterday, sending the Canadian dollar to nearly a three-decade high. The exuberance also spilled into other commodities, with wheat prices also hitting a record.
Economic fundamentals don’t justify the gains in oil markets though, say several economists.

“It’s kind of mystifying,” said Peter Hall, deputy chief economist at Export Development Canada, referring to a surge in crude oil futures to as high as $80.18 (U.S.) a barrel. He believes ebbing global demand, sparked by a drop in U.S. consumer spending, will carry oil below $70 by the end of the year.

He is not the only skeptic. Exchange-listed commodities were 18 per cent above what could be explained by fundamental factors as of August, Merrill Lynch said in a report yesterday, suggesting speculators are driving much of the gains.

Even Royal Dutch Shell PLC’s chief executive officer weighed in, saying yesterday he sees no fundamental reason for gushing crude oil prices.

The Globe and Mail (Canada)