LONDON, 10 June 2008 — Oil futures slid yesterday as analysts warned of a “price bubble” that could burst soon after crude rocketed to record heights near $140 per barrel late last week.
Oil prices soared beyond $139 on Friday after a shock jump in US unemployment sent the dollar reeling and Wall Street plunging by more than three percent amid fears of sharply slower economic growth.
New York’s main oil futures contract, light sweet crude for July delivery, gave back 99 cents to $137.55 a barrel yesterday.
The contract had spiked on Friday by $10.75 a barrel — the biggest-ever one-day jump — after soaring to an all-time high of $139.12.
Yesterday, Brent North Sea crude for July delivery shed $1.88 to $135.81.
Brent had hit a lifetime pinnacle of $138.12 and gained $10.15 in value on Friday.
“The extreme price volatility that we are now seeing is characteristic of bubbles that are about to burst,” said Capital Economics analyst Julian Jessop. “The next big move is therefore likely to be down.”
He also argued that the recent jump in oil prices was not related to the fundamentals of supply and demand, but to ongoing weakness in the US currency.
“Friday’s jump ... provides the clearest evidence yet that the oil market is increasingly detached from fundamentals.”
Over the weekend, eleven nations that guzzle nearly two-thirds of the world’s energy called for an urgent hike in global oil production.
Energy ministers from the Group of Eight (G-8) industrial powers met on Sunday in the northern Japanese city of Aomori with officials from China, India and South Korea in the wake of the record oil price spike.
The 11 nations represented voiced “serious concerns” over the level of oil prices and said there was an “urgent need for increased and timely investment in the energy sector.” Oil prices have soared five-fold since 2003 due to a variety of factors, including turbulence in the Middle East and rising demand in emerging economies such as China and India.
This year alone, prices have rocketed by almost 40 percent amid growing fears about tight supplies, the weakening US currency and production outages in key producers — particularly in Nigeria.