$70 Oil? It Could Happen…

The current account deficit widened 3.6% to $190
hotter than expected and a new record.

Crude rose above $58, to double top territory and new record highs.
The U.S., British and German embassies in Nigeria were closed, adding to
geopolitical concerns. Nigerian light sweet crude is highly prized by refiners
because it can easily be turned into gasoline. Nigerian is an OPEC member, the
largest producer in Africa and the 11th largest in the world. To top it all off,
the Shell Deer Park refinery is closing for two weeks for unexpected

Demand for gasoline is 3% higher than this time last year. Distillate demand
is up  6.5%. Refiners are operating near capacity and with inventories 9%
over last year, traders are worried not about supply, but about output.
Technical analyst John Murphy said crude could rise above $70/bbl.
“I don’t think there’s any doubt we’re headed higher,”
Murphy said in an interview today.

By contrast, a Morgan Stanley economist said
yesterday that the oil market may be headed for a massive crash. Reason
cited are: slackening economic growth, alternative energy gains and traders
sensing a price peak. Recently, Goldman Sachs outlined a super spike scenario
with oil over $100 bbl. Oil prices are up 28% since January.  A Reuters
poll showed analysts expect an average crude price of 48.71 this year and 44.18
next year. Oil hit a record high April 4 at 58.28.
Arabia Oil Minister Ali al-Naimi blames a lack of refining capacity on continued
high prices. OPEC’s Al-Sabah said that heavy oil demand in China is a major
factor behind $55-a-barrel oil.
accounted for more than a third of the increased oil demand last year. OPEC also
urged industrialized countries to build more refineries, saying that with spare
capacity the lowest in a generation, prices could spike to new record levels.
The cartel raised its price target for crude to $50/barrel, saying that prices
would have to trade above this level for seven days before they would consider
any quote increase.

The U.S. Dept. of Energy said that underground
natural gas
supplies are up 12% from a year ago.

The USDA expects to have a definitive answer next
week on the cow suspected to have Made Cow disease.

London copper closed at a record $3400/ton.
Thirty-six year low inventory levels and stronger-than-expected Chinese May
industrial production provided the impetus for the move, as did fund buying and
short covering.

The yield curve could invert, says Stephen
Major of HSBC, if the Fed continues increasing rates.

The last time the curve was inverted was

Corn continued higher as forecasts
indicated further dryness.

Brice Wightman