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2008 June 7   07:33

Crude futures locked in their biggest single-day gains in the history of oil trading on Friday

Light, sweet crude for July delivery close out the day at USD 138.54, up USD 10.75 on NYMEX. But after the settlement, the contract jumped as high as USD 139.12. Prices hit a previous record of USD 135.09 a barrel on May 22, and settled Thursday at USD 127.79. In London, July Brent crude shot up USD 10.15 to settle at $137.69 a barrel on the ICE Futures exchange. The meteoric rise of nearly USD 11 for the day combined with a rise of almost USD 5.50 the day before, took oil futures more than 13% higher in just two days, easily a record on NYMEX. And those were not the only stunning numbers released yesterday: the US government also reported the nation's unemployment rate zoomed to 5.5% in May, a monthly rise of half a percentage point, the biggest in 22 years. Oil settled at USD 138.54, a rise of more than 8%. The monster move to the upside came after Morgan Stanley analyst Ole Slorer predicted robust demand in Asia and tight supplies in the Western Hemisphere could drive prices to USD 150 by Independence Day, when millions of Americans take to the roads. Besides the jump in the unemployment rate, the Labor Department said employers had cut 49,000 jobs in May, the fifth straight month of nationwide losses. Job losses for the year reached 324,000. The White House said President Bush was considering further plans to help energize the economy, already teetering on the edge of recession and crippled by a tumbling housing market and other factors. On Wall Street, the Dow plunged 394.64 points, more than 3%, to close at 12,209.81, the biggest drop in more than 15 months in both percentage and points terms. Wall Street had managed to shrug off oil's advance on Thursday but succumbed to extreme anxiety Friday. The stock market's great concern of late has been whether consumers would curb their spending on non-essentials as they were forced to pay more for gasoline and other staples. The previously unthinkable idea of USD 150 oil, and gasoline that will keep climbing above $4, made it clear to investors that consumers would be forced to be even more conservative than they have been in recent months. The burst in oil prices also raised the prospect of accelerating inflation by adding to already strained transportation costs — which will send prices higher throughout the economy. Traders also zeroed in on remarks by an Israeli Cabinet minister who was quoted as saying his country will attack Iran if it refuses to abandon its nuclear program. Transportation Minister Shaul Mofaz added that Iranian President Mahmoud Ahmadinejad "will disappear before Israel does," the Yediot Ahronot daily reported. Iran is the second-biggest OPEC oil producer, and traders worry that any conflict with Israel could disrupt global supplies. A further weakening of the dollar also helped send oil prices higher by enticing overseas buyers armed with stronger currencies and others looking for a hedge against the greenback. But it also represented a stampede by bullish traders and optimistic computer models betting that prices still have further to rise. The dramatic reversal in what had been a weakening oil market began Thursday after ECB President Jean-Claude Trichet suggested the bank could raise interest rates and the euro climbed against the dollar. The euro strengthened further against the greenback Friday. A Labor Department report showing the U.S. unemployment rate jumped half a percentage point to 5.5% last month — its biggest monthly increase since 1986 — could drag the dollar even lower in the days ahead. The influx of so much fresh money into the energy markets has caught the attention of federal watchdogs. The U.S. Commodity Futures Trading Commission recently said it was six months into a probe of U.S. oil markets focused on possible price manipulation. Looking ahead, we can see that the bulls refuse to go away and our short-term price target of USD 140 by the end of the month now looks conservative in light of Friday's mega rally on the global petroleum market. We concur with Morgan Stanley and believe WTI and Brent could reach or even overtake USD 150 by Independence Day on July 4, which would obviously rain out the party for most American motorists, not to mention the economy as a whole.

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