Oil rises in Asia after overnight options expiry plays havoc with prices

Fri, May 16 12:15 PM

BANGKOK, Thailand (AP) _ Oil rose Friday in Asia following a whipsaw overnight session during which the expiration of options and a mix of news played havoc with prices trading in a range almost US$6 wide. During Thursday's session, the front-month crude oil contract dropped as low as US$120.75 before bouncing back to finish above U$124 a barrel.

"Unless there is a confluence of substantive bearish news, when there is a pullback of something like US$5, it's unlikely to stay down because enough participants will see that as a buying opportunity," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. Besides the expiration of options contracts, a temporary shutdown of ICE Futures trading in crude oil and other futures products due to a power outage also contributed to the previous session's volatility.

"So there was a lot of confusion yesterday, and not surprisingly, there was this wild, seesaw session," Shum said. Options let investors bet oil prices will rise or fall in the future, and prices can fluctuate widely on days when options expire.

But oil has again consolidated near the US$125 a barrel mark, Shum noted, because the commodity is still seen as a better bet than investors' other options. "Oil as a class has performed better this year than equities and bonds, and continues to encourage investors to pile money into oil and stay in oil," Shum said.

Light, sweet crude for June delivery rose 84 cents to US$124.96 a barrel in electronic trade on the New York Mercantile Exchange by midafternoon in Singapore. The contract finished 10 cents lower on Thursday at US$124.12 after rising as high as US$126.64 and falling as low as US$120.75.

Oil initially climbed in the floor session as U.S. diesel fuel prices jumped 3.6 cents at the pump to a new national average of US$4.455 a gallon (US$1.178 a liter). Diesel is used to fuel most truck, trains and ships, and is a large part of the reason prices of food and consumer goods are rising so fast.

There has also been some concern that extra Chinese demand for diesel to run emergency power generators after this week's deadly earthquake may further tighten the distillates market. But as oil reached for new records above US$126 a barrel, the U.S. Energy Department reported that natural gas inventories rose 93 billion cubic feet last week, more than analysts had expected, and that pulled the whole petroleum energy complex lower.

Fluctuations in the dollar have contributed as well to oil's volatility. The dollar has generally been stronger than earlier in the year, but it is waffling between 104 and 105 against the yen, while the euro seems to be range-bound between US$1.54 and US$1.55.

Investors have been viewing oil and other commodities as a hedge against inflation and a weaker dollar since the middle of last year, and that link has meant that oil has been tending to rise and fall inversely with the dollar. In other Nymex trading, heating oil futures rose 1.06 cents to US$3.633 a gallon (3.8 liters) while gasoline prices added 1.82 cents to US$3.184 a gallon.

Natural gas futures rose 4.1 cents to US$11.44 per 1,000 cubic feet. In London, July Brent crude rose 79 cents to US$123.42 a barrel on the ICE Futures exchange in London.

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