(Updates throughout, PVS TOKYO)
By Felicia Loo and Chikafumi Hodo
SINGAPORE/TOKYO, May 22 (Reuters) - Oil galloped to a high
above $135 on Thursday, extending this month's near 20 percent
rally after a sharp drop in U.S. crude stocks and the weakening
U.S. dollar triggered short covering by investors.
The climb in prices, which have marked new record highs in
10 of their last 14 sessions, has set off alarm bells around
the world, although OPEC has maintained that the market remains
well supplied with crude and that prices are beyond its
control.
The U.S. July crude contract <CLc1> extended Wednesday's
more than $4 surge to reach a high of $135.04 early on
Thursday. By 0333 GMT it was trading up $1.41 or 1 percent at
$134.58 a barrel, taking gains so far this year to over 40
percent.
"Prices are going in one direction. They are up all the
way," said Gerard Rigby of Fuel First Consulting in Sydney.
"The primary mover is the fall in the U.S. oil stocks, and this
started a series of short covering."
U.S. crude stocks fell 5.4 million barrels to 320.4 million
barrels last week, counter to expectations of a small rise in
inventories, intensifying concerns about supplies in the
world's biggest consumer just ahead of the start of summer.
The drop was caused by a fall in imports to their lowest in
five weeks and a pick-up in demand from refineries, the Energy
Information Administration said. []
U.S. gasoline supplies fell 800,000 barrels against a
700,000-barrel build forecast, while stocks of distillates --
which has been one of the market's biggest driver this month --
rose 700,000 barrels but were 12 percent below last year.
Heating oil for June delivery <HOM8> reached a fresh record
high of $3.9704 a gallon on Thursday, having climbed nearly 25
percent since the start of this month.
"All the focus is on bullish factors. You simply have to
follow the trend and buy now," said Tatsuo Kageyama, an analyst
at Kanetsu Asset Management in Tokyo.
"You really cannot forecast how much further the market
will rally now. All I can say is the market will continue to
rise," Kageyama said.
Signals from China, the world's second-biggest consumer,
were mixed, with April implied oil demand rising by only 3.7
percent as refiners cut back domestic runs and imported diesel
and gasoline instead, taking advantage of a tax break.
While the shift has curbed demand for imported crude, it
has driven fuel imports to record highs as firms start to
stockpile ahead of the Olympics. []
FUNDS BUYING
Several analysts said the latest step higher in prices had
come after companies or traders who sold the market short
scrambled to buy back their positions.
Forward oil prices out to 2015 <0#CL:> have risen even more
than prompt front-month prices since the start of the year.
"The surge in long-dated futures...seems to betray
financial distress: that of hedged producers facing rising
margin calls and trying to get out of their short positions,
only to find themselves squeezed," said Newedge analyst Antoine
Halff.
Recent bearishness towards the dollar added momentum to the
oil market. The U.S. dollar was pinned at one-month lows
against the euro after the Federal Reserve cut its 2008 growth
forecasts.
In minutes released on Wednesday, the Fed also said it was
concerned about inflation, indicating it was unlikely to cut
rates further.
The market has been convinced to buy oil amid a series of
bullish forecasts, while the outlook for the dollar is weak.
Investment bank Goldman Sachs has said it thinks oil prices
will average $141 a barrel in the second half of this year and
could top $200 a barrel by 2010.
U.S. investor Warren Buffett, the world's richest person,
said on Wednesday he expects the dollar to keep falling as
policies needed to correct the slide had yet to be implemented.
[]
U.S. Energy Secretary Sam Bodman said record oil prices
fairly reflect tight supplies and strong global oil demand, and
speculators were not at fault for pushing up petroleum costs.
[]
(Editing by Jonathan Leff)
