Oil tops $145 ahead of U.S. July 4 holiday

LONDON - Oil jumped to record highs above $145 a barrel on Thursday as traders rushed to buy ahead of the long holiday weekend in the world's top consumer to mark U.S. Independence Day.



By (Reuters)

Published: Thu 3 Jul 2008, 8:37 PM

Last updated: Sun 5 Apr 2015, 12:45 PM

Expectation was high that a combination of a weak U.S. dollar, lower U.S. crude stocks and tension between Israel and major oil producer Iran would push prices to $150 before the close of trade, in line with a prediction made last month.

Investment bank Morgan Stanley, one of Wall Street's biggest energy traders, said on June 6 that crude could reach $150 by July 4.

U.S. crude rose to a high of $145.85 a barrel. It was trading $1.88 higher at $145.45 by 1042 GMT.

London Brent crude hit an even higher peak of $146.69. It was trading $1.97 higher at $146.23.

Saudi Oil Minister Ali al-Naimi was more reluctant to make predictions.

Asked at a conference in Madrid whether oil would hit $150, he replied: "If I knew that, I'd be in Las Vegas."

He also said Saudi Arabia would pump more oil if there were demand for it, but that his customers were satisfied and that the market was driven by a range of factors, but not by any lack of supply.

One of those factors is the weakening U.S. dollar.

The currency was forecast to fall further when the European Central Bank announces what is expected to be its first rate rise in more than a year at 1145 GMT, potentially strengthening the euro against the dollar.

A weak U.S. dollar has helped to fuel this year's rally across dollar-denominated commodities as investors seek to hedge against inflation and falls in other asset classes.

Oil prices, which have been edging higher since the start of the week, gained momentum on Wednesday after U.S. government data showed a sharp fall in oil inventories.

Bullishness has been tempered slightly by evidence high oil prices have started to erode demand as U.S. gasoline prices have leapt to more than $4 a gallon.

But traders were reluctant to sell ahead of the U.S. Independence Day holiday, which marks the peak of the U.S. driving season, particularly in view of heightened tension between Israel and Iran.

Speculation has mounted Israel could launch an attack on Iran's nuclear plans, which Tehran has insisted are purely for peaceful purposes.

The market is concerned any conflict could disrupt oil shipments from the Gulf through the vital shipping route, the Strait of Hormuz.

Roughly 40 percent of the world's seaborne oil passes through the Strait.

Reuters

Falling shares, Ambani feud could scupper MTN deal

MUMBAI - India's Reliance Communications Ltd has days to reach an agreement for a tie-up with South Africa's MTN Group, but falling shares and a face-off between the Ambani brothers could all but scuttle a deal.

Shares in Reliance Communications, which is holding exclusive talks with South Africa's MTN to create a global top 10 telecoms company, have shed a third of their value since the company, run by Anil Ambani, said in May the firms were considering a potential combination. Reliance shares fell 6.9 percent on Thursday.

There is no sign that the bitter rivalry between India's two richest men is letting up. Anil Ambani's aim to create a global company has been threatened by a claim from older brother Mukesh Ambani, who controls Reliance Industries, of first right of refusal on India's No. 2 mobile operator.

"The tiff has almost certainly scuppered the deal," said Emeka Obiodu, a senior mobile technologies specialist at London-based research firm Global Insight.

"As long as there is any uncertainty about the legal validity of a deal, it is unlikely MTN will go through with it. And there is no point in extending talks if the situation will not change."

The 45-day exclusivity period ends on July 8, Reliance said.

Reliance Communications said last month the claim by Reliance Industries would not delay its talks with MTN. But traders in Mumbai earlier this week said concerns that Mukesh may throw a spanner into the works had helped push down the share price.

The lower valuation of Reliance Communications, which now has a market worth of about $18 billion, down from nearly $27 billion when it first said it was in talks, could spoil the share swap that the two firms were reported to be discussing.

"Will MTN still be inclined to give Ambani a big stake, now that Reliance shares are down?" said Harit Shah, telecom analyst at Angel Broking, which has a 'buy' rating on the stock.

Media reports and a source close to the development had indicated the two firms were aiming at a reverse takeover, with a share swap that would give the Anil Dhirubhai Ambani Group the largest shareholding in MTN, and making Reliance Communications a subsidiary of MTN, sub-Saharan Africa's top mobile operator.

"Ambani may also need more cash, now that valuation has fallen, and that will be difficult in this market," Shah said, adding the deal had a "50-55 percent chance" of going through.

The volume of worldwide mergers and acquisitions announced in the first half of 2008 fell by 36 percent compared with the same period last year, Thomson Reuters data showed, because of volatile markets.

Other suitors

Newspapers reported on Thursday that Reliance Communications along with investors, including Middle East sovereign wealth funds, may buy a majority stake in MTN rather than merge operations as planned earlier.

A spokesman for Reliance Communications declined comment.

Reliance Communications may also consider a revenue-sharing agreement, said Kevin Trindade, analyst at KR Choksey Securities.

"They will have to restructure the deal. The legal challenge from Reliance Industries can open a whole can of worms and a lengthy legal battle can drag the shares lower," he said.

A potential combination of MTN and Reliance Communications will have operations in about two dozen countries.

Reliance Communications, which has snapped up a series of smaller overseas assets recently, will not be content simply with growth in the Indian market, which Gartner consultancy forecast would expand cellular services revenue at 18 percent annually and add subscribers at 21 percent a year till 2012.

It is keen on Africa: it recently bought a telecoms firm in Uganda, and was one of four bidders last year for a controlling stake in Telkom Kenya, which went to France Telecom

This time around though, it cannot hope to fend off other suitors for MTN, Obiodu said.

"MTN has signalled it's on the market and other bidders may only be waiting for the exclusivity period to end before they throw their hat into the ring," he said.

"Vodafone, France Telecom, Deutsche Telekom and China Mobile are all interested in the Middle East and African markets," he said.

An investment banker who is not directly involved in the deal also said MTN "would not play the waiting game" with Reliance.

"Anil is a tenacious guy and will fight, but he has nothing to offer as bait to keep MTN interested for long," he said.

The deadline to the talks comes two days after the death anniversary of Dhirubhai Ambani, founder of Reliance Industries, and still a strong influence on the squabbling Ambani brothers.

Anil, who chose his father's birth anniversary in December 2006 to announce his interest in Hutchison's controlling stake in the Indian mobile venture with Essar, may well pick the 6th.

"Anil's very particular about dates. He may say something on the 6th," Shah said.


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