Oil shoots to US$70 as Katrina wreaks havoc

LONDON – Oil hit a record high above US$70 a barrel yesterday, hurting stocks and the dollar on fears that global economic growth may be curtailed, but benefiting safe-haven assets like government bonds and gold.

US light crude peaked at US$70,80 before easing to around US$69 – still a rise of 4,5 per cent – after major oil producers and refiners shut down facilities in the Gulf of Mexico as Hurricane Katrina bore down on the US coast. Katrina is the latest damaging hurricane in a severe Atlantic storm season and traders are worried about its impact on already strained fuel supplies.”We can expect two months of lost production, and coming in the peak demand period this is the worst possible news,” said David Thurtell, strategist at the Commonwealth Bank of Australia.The latest spike in energy prices provided further cause for concern about the growth outlook following a series of patchy economic data in recent sessions.Stocks suffered, with Europe’s blue-chip FTSEurofirst 300 index down 0,2 per cent to 1 160 points, its sixth straight session of declines.Insurers topped the list of losers on concerns about storm-related claims but gains for heavyweight oil stocks helped cushion the market.Activity was light with London closed for a bank holiday.”Traders are uncertain of the full effects Katrina will have on production,” said Mark Chesterman, a trader at IG Index.”Added to the poor consumer confidence figures on Friday, investors will have no confidence for a quick recovery in time for the next reporting season.”The University of Michigan’s sentiment index on Friday showed high gasoline prices knocked US consumer confidence more than expected in August.Stocks in Asia, which relies on imports for much of its oil needs, also fell.Indonesia’s Jakarta Composite Index tumbled 5,2 per cent, South Korea’s KOSPI shed 2,2 per cent and Japan’s Nikkei Index closed down more than one per cent.Tokyo’s share losses weighed on the yen, with political uncertainty also a factor after a poll showed a slip in support for Prime Minister Junichiro Koizumi’s ruling Liberal Democratic Party ahead of next month’s general election.The dollar rose to around 110,3 yen but fell against most other major currencies as investors bet the US economy would feel the pinch more than most from the sky-rocketing oil price.”The risk with the high oil price is that it hits the US consumer more than the European or Swiss consumer,” said Andreas Hahner, a currency strategist at Dresdner Kleinwort Wasserstein in Frankfurt.The dollar was down about 0,2 per cent from Friday’s close against the euro, trading around US$1,2310 and also eased against the Swiss franc and sterling.Concerns about growth underpinned government debt prices, with benchmark US 10-year yields trading around 4,14 per cent a seven-week low.That kept flattening pressure on the US yield curve, with the spread between the 10-year bond and the two-year note at just 13 points, near its lowest since January 2001.Euro zone government bonds also benefited from a weaker growth outlook, with 10-year euro zone government bonds yielding 3,14 per cent.Gold prices rose, testing resistance around US$440 an ounce as the booming oil price and weaker dollar improved the metal’s status as a hedge against inflation.-Nampa-ReutersKatrina is the latest damaging hurricane in a severe Atlantic storm season and traders are worried about its impact on already strained fuel supplies.”We can expect two months of lost production, and coming in the peak demand period this is the worst possible news,” said David Thurtell, strategist at the Commonwealth Bank of Australia.The latest spike in energy prices provided further cause for concern about the growth outlook following a series of patchy economic data in recent sessions.Stocks suffered, with Europe’s blue-chip FTSEurofirst 300 index down 0,2 per cent to 1 160 points, its sixth straight session of declines.Insurers topped the list of losers on concerns about storm-related claims but gains for heavyweight oil stocks helped cushion the market.Activity was light with London closed for a bank holiday.”Traders are uncertain of the full effects Katrina will have on production,” said Mark Chesterman, a trader at IG Index.”Added to the poor consumer confidence figures on Friday, investors will have no confidence for a quick recovery in time for the next reporting season.”The University of Michigan’s sentiment index on Friday showed high gasoline prices knocked US consumer confidence more than expected in August.Stocks in Asia, which relies on imports for much of its oil needs, also fell.Indonesia’s Jakarta Composite Index tumbled 5,2 per cent, South Korea’s KOSPI shed 2,2 per cent and Japan’s Nikkei Index closed down more than one per cent.Tokyo’s share losses weighed on the yen, with political uncertainty also a factor after a poll showed a slip in support for Prime Minister Junichiro Koizumi’s ruling Liberal Democratic Party ahead of next month’s general election.The dollar rose to around 110,3 yen but fell against most other major currencies as investors bet the US economy would feel the pinch more than most from the sky-rocketing oil price.”The risk with the high oil price is that it hits the US consumer more than the European or Swiss consumer,” said Andreas Hahner, a currency strategist at Dresdner Kleinwort Wasserstein in Frankfurt.The dollar was down about 0,2 per cent from Friday’s close against the euro, trading around US$1,2310 and also eased against the Swiss franc and sterling.Concerns about growth underpinned government debt prices, with benchmark US 10-year yields trading around 4,14 per cent a seven-week low.That kept flattening pressure on the US yield curve, with the spread between the 10-year bond and the two-year note at just 13 points, near its lowest since January 2001.Euro zone government bonds also benefited from a weaker growth outlook, with 10-year euro zone government bonds yielding 3,14 per cent.Gold prices rose, testing resistance around US$440 an ounce as the booming oil price and weaker dollar improved the metal’s status as a hedge against inflation.-Nampa-Reuters