China (Platts)-- October 8-12 2007

By reporters at Platts, the energy information division of the McGraw-Hill Companies. For more information about Platts' information products in China, contact Platts at china@platts.com, or call its representative office in Guangzhou at (+86) 20 2881 6588.

Data showing that the world's oil markets could remain tightly supplied well into the end of 2008 brought hot money pouring back into crude futures, more record high prices, and left $100/barrel oil closer to the lips of Middle Eastern crude exports than ever before.

If early signs are right, and next year is tight again, 2008 would mark a sixth successive year that the world's crude suppliers and oil refiners have failed to get ahead of demand surges.

In anticipation of more of the same, investors bought up crude futures at the close of trading last week, helping WTI crude futures trade on Friday at a new record high of $84.05 per barrel, before settling up 61 cents at $83.69 per barrel -- a record close, and a solid 3% gain in value from the week ending Oct 5.

ICE Brent settled at a new high of $80.55 per barrel, up 2% from the week ending Oct 5. Heating oil, gasoil and gasoline all gained around 1% in value over the week ending Oct 12.

Put in a broader context, current crude futures prices are startling. At above $80, both WTI and Brent crude futures are up about 40% from both where they were this time last year, and where they were at the start of 2007.

With only Chinese stock markets showing a better return to financial investors these days, it can be little surprise that speculators have decided another round of buying in oil is called for.

"The petroleum market remains on a mission to exploit any and all upside price volatility almost regardless of the underlying fundamentals," Timothy Evans, analyst at Citigroup, said in a report.

Oil suppliers have "lost control" of the oil market, with prices now being "set in the trading rooms of New York, London," Tokyo and other trading centers, not by OPEC and other major producers, US Energy Secretary Samuel Bodman told reporters as last week came to an end.

As of October 9, non-commercials (primarily comprised of hedge funds) were net long 69,190 crude contracts, while commercials (producers, refiners, banks) were net short 65,794 crude contracts, according to data released October 12 by the Commodity Futures Trading Commission. Activity for October 10-12 will not be released until the week of October 15.

Total NYMEX open interest for crude jumped nearly 50,000 contracts on October 11, suggesting fresh positions were entering the market. One can assume noncommercials continued to add length, but this will not be known for certain until the next CFTC report is released.

"Given the depth of this week's fresh infusion of speculative capital into the nearby futures, today's pre-weekend run into new record high territory almost appeared inevitable," said independent energy analyst Jim Ritterbush in a report October 12.

The latest price rise "has developed on a limited flow of fresh news into the market," he added.

Updated: October 15, 2007