Oil prices on Thursday hit a record high above US$110 a barrel as investors fled the tumbling dollar that fell to new lows against the euro and a 12-year low versus the yen.
Light, sweet crude for April delivery rose 78 cents to reach US$110.70 in early afternoon European electronic trading on the New York Mercantile Exchange. On Wednesday, it had set a record trading high of $110.20 a barrel.
In London, Brent crude futures rose 23 cents to $106.50 a barrel on the ICE Futures exchange.
The greenback's decline has played a role in a surge in crude futures, which have hit record territory in 11 of the past 12 sessions, despite the fact that crude supplies have risen 10.2 per cent since early January.
The euro rose as high as $1.5625 before falling back to $1.5592.
In Asia, the dollar briefly slumped to 99.75 yen before creeping back up to 100.27 yen.
"The dollar will remain the dominant factor until the Fed meeting next Tuesday but oil will also have to balance with equities under the pressure of more credit hedge funds going belly up," said Olivier Jakob of Petromatrix in Switzerland, referring to the U.S. Federal Reserve.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak.
"Oil and other commodities have an intrinsic value so that to the extent that the U.S. dollar depreciates, (oil) becomes relatively cheaper in terms of other currencies, such as the euro," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "So you get an adjustment to compensate for that effect."
Oil prices initially fell Wednesday in New York trading after the U.S. Energy Department's Energy Information Administration, or EIA, said crude supplies rose 6.2 million barrels last week, more than three times the 1.6 million barrels forecast by analysts surveyed by Dow Jones Newswires. But buyers quickly returned to the market.
"I think the weakness of the U.S. dollar was a key part of that," Moore said.
The EIA also reported that gasoline supplies rose 1.7 million barrels last week, well above the expected 300,000 barrel increase, and distillate supplies dropped 1.2 million barrels, less than the expected 2 million barrel decline.
It was the eighth increase in crude supplies in nine weeks, putting oil inventories back on a growth track after a one-week decline. Meanwhile, forecasters including the Energy Department, the International Energy Agency and OPEC have consistently reduced their demand growth predictions for this year.
Wednesday's EIA report offered more evidence demand is falling: Gasoline consumption fell 0.7 per cent last week compared to the same week last year. Normally, gasoline consumption grows about 1.5 per cent year-over-year, just to keep pace with population growth.
Many analysts argue that current oil prices can't be justified by the market's underlying supply and demand fundamentals. Yet evidence of weak demand amid growing supplies has not stopped oil prices from rising in the past, particularly when the dollar is falling.
"Some investors are apparently viewing oil and other commodities as providing something of a hedge against U.S. dollar weakness and possibly inflation concerns as well," Moore said.
In other Nymex trading, heating oil futures gained 0.77 cent to $3.0321 a gallon (3.8 litres) while gasoline prices were down 1.06 cents to $2.7180 a gallon. Natural gas futures added 2.7 cents to $10.038 per 1,000 cubic feet.
Anyone else think oil is "out of this world crazy"..??
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Adam Affleck
Charlottetown Remax Realty
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