Oil prices rise after news of Hormuz collision
By GEORGE JAHN21 Mar 2009 1:40 AM
Oil prices rise after news of Hormuz collision
Eds: UPDATES with collision in Strait of Hormuz, prices. Moving on
general news and financial services.
Associated Press Writer
VIENNA (AP) - Oil prices reversed course and traded higher Friday
on news that two U.S. Navy vessels had collided in the Strait of
Hormuz, the portal for about 40 percent of all seaborne traded oil
last year.
A submarine and an amphibious ship collided early Friday in the
Strait of Hormuz between Iran and the Arabian peninsula, the U.S.
Navy's 5th Fleet reported.
Benchmark crude for April delivery, which had traded lower for
most of the morning, erased those losses and rose 39 cents to $52 on
the New York Mercantile Exchange.
The USS Hartford, a submarine, collided with an amphibious ship,
the USS New Orleans. Both were operating under their own power.
The Navy said the ships were conducting regular security
operations. According to the Bahrain-based 5th Fleet, 15 soldiers
aboard the Hartford were slightly injured but able to return to
duty.
The New Orleans suffered a ruptured fuel tank, resulting in an
oil spill of approximately 25,000 gallons of diesel fuel.
Oil prices rallied this week with a growing consensus that OPEC
has cut production substantially.
In a report Friday, analysts with Morgan Stanley said a sharp
drop-off in deep water drilling projects could cut crude supplies by
another 2.4 million barrels a day in 2011.
That would come on top of 4.2 million barrels a day that OPEC has
promised to cut.
With the April contract set to expire Friday, most of the trading
had shifted to the contract for May, which rose 29 cents to $53.33.
Traders, however, said the economic downturn was keeping prices
in check.
An incident like a collision in the Strait of Hormuz would likely
have sent prices skyrocketing just seven months ago.
"One significant bad figure and the whole thing can collapse, so
it's really fragile," said Christoffer Moltke-Leth, head of sales
trading for Saxo Capital Markets in Singapore.
Oil has been bolstered this week by news the U.S. Federal Reserve
plans to buy $1.25 trillion of government bonds and mortgage-backed
securities. The announcement sent the dollar down on worries the
plan would expand dramatically the money supply and stoke inflation.
Oil contracts are often used by investors as a hedge against
inflation and a weakening dollar.
"Oil is still strongly correlated to the dollar," Moltke-Leth.
"What the Fed is doing - printing money to buy government debt -
it's just the most inflationary thing you can do."
The dollar was steady at 94.58 yen Friday, but that was down from
nearly 99 yen just two days ago. The euro was trading at $1.3649.
OPEC has also helped boost prices by largely complying with 4.2
million barrels a day of production cuts the group has announced
since September. The Organization of the Petroleum Exporting
Countries decided not to reduce output quotas at a meeting on
Sunday, but instead focus on adhering to the existing cuts.
Analysts estimate OPEC has so far fulfilled about 80 percent of
the promised cuts.
"They won a bit of credibility by saying they have to stick to
their quotas and be disciplined," Moltke-Leth said.
Vienna's JBC Energy forecast future upward pressure, despite
Friday's downward move.
"OPEC cuts, declining volumes in floating storage, refiners
preparing for the summer driving season as well as ... mentioned
inflationary concerns should all contribute to this development,"
it said in its daily report.
In other Nymex trading, gasoline for April delivery rose less
than a penny to $1.4456 a gallon, while heating oil rose 1.5 cents
to $1.3715 a gallon. Natural gas for April delivery rose 13 cents to
$4.30 per 1,000 cubic feet.
In London, Brent prices rose 50 cents to $51.17 on the ICE
Futures exchange.
---
Associated Press writer Alex Kennedy contributed to this report
from Singapore.
AP-TK-20-03-09 1440GMT
