Bullish spin to surge in oil price

After months when BP, through bad luck and its own obvious failings, simply couldn't catch a break, the company now has at least one thing going in its favour - the rising oil price.

The company's oil and gas production was actually down 3 per cent, yet profits from exploration and production were actually up 4 per cent. The difference is the amount that BP is getting for each barrel it manages to get out the ground without spilling it.

Yesterday, the oil price surged to a new six-month high, after some bullish commentary from Opec members and another bout of weakness in the US dollar, the currency in which the commodity is priced.

US crude rose 36c to US$84.26 yesterday after earlier touching US$84.50, while Brent crude rose 30c to US$85.71.

The dollar is down about 8 per cent since September, as measured against a basket of currencies, in the expectation of new monetary stimulus from the US Federal Reserve when it announces its latest interest rate policy today.

Shokri Ghanem, chairman of Libya's National Oil Corp, said producers' income has declined sharply relative to prices because of the falling dollar, and the Opec oil cartel, of which Libya is a member, has begun talking about pushing up prices, or at least being content to let them rise.

This week, Saudi Arabia's Oil Minister Ali al-Naimi said oil prices in a US$70-US$90 range were comfortable for consumers, signalling a higher acceptable range from the US$70-US$80 range the kingdom has previously said was consistent with maintaining demand. Opec has officially held its output steady for nearly two years, since agreeing in December 2008 on a record production cut of 4.2 million barrels a day. Speaking to Reuters yesterday, Ghanem predicted oil would surpass US$100 by the end of this year.

"There is a sort of tacit compensation for the increase in the prices of the other commodities," he said. "The price is inching up and I think it will be closer to US$100."

Michael Guido, director of hedge fund sales at Macquarie Bank in New York, said the Libyan comments had triggered a reassessment of the oil price.

"There is a new bullish spin today among the funds in regards to where the barrel really belongs when looking at the dollar and other commodity markets," he said.

Wall St analysts remain sceptical, however. A poll of analysts predicted an average oil price of just above US$83 a barrel next year, and a separate Reuters survey on expected supply and demand found the market would stay in surplus in 2011 as the global economy - and the US economy in particular - remains sluggish. Independent