”Simply put, oil is a runaway train,”

SAN FRANCISCO (CBS.MW) — Crude-oil futures trekked into uncharted territory Monday, closing over $41 a barrel as a late-day reversal as concerns over new violence in Iraq pulled the market to a five-session win.

“Simply put, oil is a runaway train,” said Kevin Kerr, editor of newsletter Kwest Market Edge.

“While technically the energy markets look like they need a correction, the basic supply and demand argument prevails,” he said.

Oil futures close at a new high of $41.55

By Myra P. Saefong
Emily Church
Last Updated: 5/17/2004 3:51:42 PM

SAN FRANCISCO (CBS.MW) — Crude-oil futures trekked into uncharted territory Monday, closing over $41 a barrel as a late-day reversal as concerns over new violence in Iraq pulled the market to a five-session win.

“Simply put, oil is a runaway train,” said Kevin Kerr, editor of newsletter Kwest Market Edge.

“While technically the energy markets look like they need a correction, the basic supply and demand argument prevails,” he said.

June crude climbed 17 cents to close at $41.55 per barrel on the New York Mercantile Exchange, another record high. The contract spent the majority of the session lower, falling as low as $40.80, but reversed course in the last few minutes of trading.

North Sea Brent crude spiked to a high of $38.32 a barrel in London; the active July contract closed up 5 cents to $37.91 per barrel.

The U.S.-appointed head of the Iraqi Governing Council, Abdel-Zahraa Othman, also known as Izzadine Saleem, was killed Monday near the U.S. headquarters in Baghdad. He was waiting in a convoy to enter the compound when a car bomb exploded, according to CBS News.

Separately, a report in the Times of London said the U.S. and Britain are readying plans to speed up a withdrawal of the coalition forces in Iraq, and are seeking to help Iraq build its own army and police force.

The news pushed Nymex crude to a high of $41.85 per barrel in overnight trading. Brent crude, however, has yet to top its all-time high of $41 seen in the first Gulf war.

Oil futures have climbed a total of nearly 7 percent over the past five sessions despite a growing expectation that the OPEC oil-producing nations are moving toward releasing more crude supplies.

OPEC hype

OPEC ministers will meet during the International Energy Forum in Amsterdam from May 22-24 for consultations and a formal meeting of the cartel is set for June 3 in Beirut, Lebanon.

Saudi Arabia has said OPEC should raise output by 1.5 million barrels a day.

According to Qatari energy minister Abdullah Bin Hamad Al-Attiyah, the cartel’s informal meeting on the sidelines of the energy summit will be to approve a hike in production.

“There is a big chance” that the informal meeting could become a formal meeting, he hinted to reporters on Sunday, according to AFX News.

Yet, the attempts by some OPEC members, including Saudi Arabia to deflate prices “has so far failed to make a price impact,” Man Energy in London said. “We think this is due to the fact that the ’squeezed’ part of the crude market lies among the sweeter varieties, and is therefore not being alleviated by the release of more Saudi heavy.”

Kwest’s Kerr said any talk from OPEC will likely provide some relief for the oil market.

But anything the cartel does “will have no real affect on near-term gasoline supplies, and refiners know it,” he said.

So while an OPEC move may reduce the “‘Iraq premium’” a bit, in reality demand will still be very high and product levels low,” Kerr said.

Oil rally could fizzle

On the other hand, oil’s rally could fizzle out at some point this week, analysts said.

“This week may see measures to halt the advance, such as a potential announcement for an SPR [Strategic Petroleum Reserve] release,” or an increase in inventories, said John Person, editor of The Bottom Line newsletter.

Those events “could break the back of this huge advance that is starting to worry lawmakers and economists,” he said.

Kwest’s Kerr pointed out that with prices this high, the Bush administration will likely have to cave in and release some supplies from the strategic reserve.

That’ll give people some “psychological comfort” but “will make little difference at the pumps realistically,” he said.

On the technical trading end, investors should take a good look at the historical price activity for crude, said Jon Najarian, a Chicago-based trader and money manager.

Crude has had three-day runs that carried prices up more than 5 percent 10 times since 1983, he said.

“In 9 of those 10 examples, over the next 3 sessions, crude oil corrected by 6 percent, which would be $2.55 or back down to $38.50″ in the current case, he said.

In other energy dealings on Nymex Monday, June unleaded gasoline closed at a fresh all-time high of $1.417 a gallon on the Nymex, up 0.69 cent. Retail prices for a gallon of regular unleaded are nearing $2 per gallon. The national average stood at $1.97 on Monday — another record, according to AAA’s daily fuel gauge report.

June heating oil tacked on 0.19 cent to close at $1.0428 per gallon. Natural gas for June delivery added 2.3 cents to end at $6.424 per million British thermal units.

Tracking the energy equities, the Philadelphia Oil Service Index ($OSX) moved higher, but the CBOE Oil Index ($OIX) was little changed. See Energy Stocks.

In the Nymex metals pits, gold futures closed at a seven-session high amid weakness in the broader stock market. See Metals Stocks.

The Reuters/CRB index, a broad-based measure of commodity futures markets, was down 0.3 percent at 268.36.

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