Barclays Capital Oil Quotations

Much of gold's recent rally has been supported by positive investor sentiment in light of rising oil prices, inflation concerns and geopolitical volatility, and we do not expect these supportive macro-factors to dissipate in the near term.

OPEC production is falling in any case thanks to Nigerian losses, and the threat from Niger Delta militants to oil exports has the potential to get even more serious.

While we think such high prices are not justifiable by gold 's commodity fundamentals in terms of market balance and inventory levels, the combination of a surge in oil prices above $70/barrel, geopolitical tensions and strong momentum is dominating at present, and further gains cannot be ruled out.

We believe the rise in Chinese crude oil imports in October signals a period of stronger Chinese apparent demand figures over Q4 2005 and Q1 2006.

U.S. gasoline inventories have fallen further below their five-year average, while U.S. oil demand remains strong. Our estimates of current market balances indicate a significant tightening relative to a year ago.

Crude oil was the one thing not in short supply. What the U.S. lacks is oil products, especially gasoline, and it lacks the spare capacity to refine more crude.

The oil system, both upstream and downstream, is being run close to sustainable limits and the tensions created by the absence of slack are now the key driver of prices.

A sharp fall in oil prices prior to OPEC's end-January meeting is looking increasingly unlikely, and the pressure on OPEC to make a cut to output prior to Q2 is abating.

The release of strategic reserves contains a very large component of unneeded crude oil and does little to directly impact on the actual supply gap of U.S. oil products.

The faltering uptrend...warns of choppy times ahead. However, we do not think we have seen the peak for oil and while prices remains supported above $56.50 we are targeting $75 later in the year.

The current high levels of U.S. inventory is of little comfort given that it is the product of an unusually high level of seasonal maintenance. Although crude stocks are rising, product stocks are falling and U.S. oil demand is growing strongly.