By Wang Lan (China Daily)
Updated: 2007-11-07 18:34

Shanghai fuel oil futures jumped to the dizzying height of 3,946 yuan per ton before dropping slightly to close the day at 3,916 yuan, a historic record and tracking the surging global crude oil prices, which reached as high as $98.03 a barrel in electronic trading.

The most actively traded crude oil futures contracts for December delivery on New York Mercantile Exchange, NYME, touched $98.03 a barrel before dropping back to around $97, aided expectations of tightening in supply and further declines of the US dollar.

The weakening US dollar, exacerbated by the sub-prime debacle, has also driven gold prices to record levels around the world. In Shanghai, the most actively traded gold product Au9999 jumped 2.4 percent to 199.96 yuan per gram. The price of Au9999 has climbed a total of 6 percent in the past two weeks.

Analysts predicted oil prices to soon breach the all-time inflation-adjusted high of $101.70 reached in April 1980. Crude oil futures prices on NYME have surged a total of 12.5 percent in the past two weeks, despite occasional reverses.

Keeping in tandem with the international market, fuel oil futures contracts for delivery in January 2008 on Shanghai Futures Exchange rose 1.32 percent to close at 3,916 yuan. Contracts on SHFE climbed an aggregate 7 percent from two weeks ago.

Analysts attributed the oil price surge to several factors including a weakening US dollar, falling inventories, shrinking surplus capacity, and geopolitical concerns.

According to latest figures from U.S. Energy Information Administration, EIA, global oil consumption in the fourth quarter is expected to go up by 1.8 million barrels per day from the year earlier period. Meanwhile world oil consumption in 2008 will also increase by 1.5 million barrels a day.

Meanwhile, Organization for Economic Co-operation and Development (OECD) commercial inventories are declining. They were estimated at the end of September to be around 2.6 billion barrels, down about 5.5 percent from a year earlier.

Analysts said because of rising oil consumption, additional OPEC production may not be sufficient to arrest the inventory decline, which would in turn continue to push up oil prices.

"At a time when the market is operating limited surplus production capacity, the global market will become vulnerable to any supply disruptions," Lin Hui, an analyst at a futures company of Orient Securities.

"The fuel oil futures prices will move in lock step with the upward trend of crude oil in the global market, which is expected to go up to $100 in the coming months," Lin said.

Meanwhile, gold futures prices hit to a record high of $839.5 per ounce on NYME after jumping an aggregate 8.8 percent during the past two weeks.

Analysts said the further weakening of the US dollar, which fell to a new low against the euro on Tuesday, also helped push up oil and gold prices, because investors are looking to energy and precious metals hedge against weak dollar. Investors' expectations of another Federal Reserve rate cut also raised concern the value of the US dollar would dive even further against other major currencies and spurred more investors to seek refuge in oil and the yellow metal.