Sam Fletcher
Senior Writer

HOUSTON, May 12 -- The benchmark crude futures price climbed above $126/bbl for the first time in intraday trading May 9 in the New York market on fears of an US confrontation with Venezuela over evidence that Venezuelan President Hugo Chavez has aided rebels in the attempted overthrow of the government of Colombia.

If the US imposes sanctions against Venezuela for aiding rebels in South America, Venezuela might cut off oil supplies to the US.

The front-month crude contract climbed by a total $9.64/bbl last week in the US futures market to more than double the price that it commanded a year ago. North Sea Brent crude gained $10.84/bbl last week. "Gasoline was matching the gains on crude oil with $9.66/bbl during the week, but no one could come close to the weekly gains of heating oil at $17.64/bbl," said Olivier Jakob at Petromatrix, Zug, Switzerland.

However, crude prices fell in early trading May 12 in New York, "amidst the first signs of demand destruction in emerging economies," said analysts in the Houston office of Raymond James & Associates Inc. "Chinese crude imports declined nearly 4% year-over-year, the first fall since October 2006, while Indian industrial production growth slowed to the lowest level since 2002 (only one data point). At $125/bbl, oil has risen farther and faster that even our bullish predictions. A modest pullback may actually be healthy for energy stocks, as broader economic concerns remain just as important to the long-term picture," the analysts said.

Jakob at Petromatrix said, "West Texas Intermediate is currently priced about $20/bbl above its 200-day correlation to the dollar, hence it can still afford some further weakening of the dollar. The gold-to-crude ratio remains at a multiyear low as metals are keeping a stronger relation to economics than oil is."

In other news, a bill pending in the US Senate would impose speculative-trading limits for WTI on the London markets, like those on the New York market. In 1999, the Commodity Futures Trading Commission permitted the old International Petroleum Exchange to place computer terminals for trading in the US without being subject to US regulation. However, IPE later was purchased by Intercontinental Exchange Inc. in Atlanta, but regulation was left to the UK Financial Services Authority. Now Congress is pushing for more US regulation of trades in all markets to ensure that speculators are not running up oil prices for their own benefit.

Meanwhile, Raymond James analysts said, "The surge in commodity prices has helped to drive increased investment in better technology and more equipment. The industry is clearly in an up-cycle as demand for more and better equipment continues to surge." At the recent annual Offshore Technology Conference in Houston, the analysts said, "We gathered from hundreds of companies that the common theme was that 'business was good and getting better.'"