07/01/2009 (The Star Online), Petaling Jaya - Crude oil held steady at a near five-week high above US$48 a barrel during Asian trading hours yesterday, driven by the escalation of conflict in Gaza and signs of greater compliance with Opec’s target of a 9% production cut announced last month.

In the middle of European trading hours yesterday, crude oil briefly crossed US$50 a barrel.

Israel’s ground offensive in the Gaza Strip continued to fan fears of possible Middle East supply disruption, while refinery officials in Asia reported that Opec members Kuwait and Qatar had indicated plans to cut oil shipments to the region beginning this month.

A dispute between Russia and Ukraine yesterday that had reduced gas supply in Europe was also supporting the price of crude oil.

However, capping a further rise in crude oil prices was news that Iraq, the holder of the world’s third largest crude oil reserves, would boost its output.

Bloomberg reported that the Iraqi government had announced that it was seeking help from international oil companies to double the country’s output by 2012.

According to the US State Department in its weekly Iraq Status Report, Iraq’s crude oil exports rose to an average of 1.88 million barrels a day in December from 1.69 million barrels a day in November.

Iraq is an Opec member but is not bound by a production quota.

Meanwhile, a faltering global economy - that would lead to lower fuel demand - was also dampening prospects for a further rebound in crude oil prices.

Victor Shum, a senior principal at US energy consultancy Purvin & Gertz’s office in Singapore, told StarBiz: “It is still geopolitical risk that is supporting the (crude) oil above US$48 a barrel, but the risk of oil disruptions remains limited as parties in the Gaza conflict being non-oil producers.

“The future direction of crude oil price will be driven by the compliance with Opec targets and the future state of the global economy which is gloomy.”

With the prospects for a global economic rebound to occur earliest only in the later part of 2009, crude oil prices would be dampened in the short term, Shum said.

Aseambankers head of retail research and chief chartist Lee Cheng Hooi sees “a quite fierce rebound developing for crude oil that would pull up all other commodities as well.”

Lee put an immediate target of US$51.40 per barrel and a three-month target of US$64.90 a barrel for crude oil.

Crude palm oil (CPO) traded in Kuala Lumpur surged to close above RM1,900 per tonne on signs of renewed demand from China.

Bloomberg reported that palm oil traded on the Dalian Commodity Exchange in China for May delivery, the most active contract, rose as much as the 5% daily limit to 5,430 yuan yesterday.

Closing at its highest level in three months, Malaysia’s benchmark three-month CPO futures rose RM143, or 7.78%, to RM1,980 per tonne yesterday.

A palm oil trader told StarBiz there was concern that the RM450 spike in CPO prices over the past seven consecutive trading days would hurt smallholders should prices fall suddenly.