Oil soared to record highs on Wednesday, drawing within a hair’s breadth of the $100 milestone as the United States dollar plumbed new lows and the onset of cold weather stirred anxiety over winter supplies.
US light crude for January delivery surged to a record of $99,29 a barrel early in the session, but pared those gains to stand 61 cents higher at $98,64 by 7.06am GMT.
Prices blasted past the previous $98,62 a barrel record, extending a rally that has lifted oil more than 40% since August, as funds buy in on the weakening dollar and concerns that limited Opec supplies will squeeze winter supplies.
”Oil prices have every reason to rise. Speculative money is coming into the market as the dollar is weakening,” said Koo Ja-kown, crude analyst at Korea National. ”On top of that, there are supply concerns for winter fuel.”
London Brent crude rose 50 cents to $95,99 a barrel.
Oil has been rising inversely to the dollar over the past months amid a fever of speculative trading. The falling dollar helps protect demand for oil in non-dollar economies and could prompt Opec producers to sustain a higher price to offset the reduced purchasing power of petrodollar revenues.
The dollar dropped to a new record low against the euro and versus a basket of currencies on Wednesday, after the US Federal Reserve cut its growth outlook for next year, keeping alive hopes for another interest rates cut in December.
Dollar factor
”The main reason behind the [rise] is the weak dollar against Asian currencies,” said Rob Subbaraman, strategist at Lehman Brothers. ”We expect the weak dollar to continue for a fair bit, so this is not a short-term issue.”
Some commodities such as gold and platinum have also rallied on the falling dollar, although others such as copper and zinc have slumped to multi-month lows as traders fear that the US subprime mortgage crisis will crimp economic growth and demand.
Although oil prices are now near their inflation-adjusted peak from 1980, the oil market has continued to rally, buoyed in part by mounting fears that winter fuel supplies may come under strain if December is colder than usual, as forecasters expect.
US weekly distillate stocks — which include heating oil — are expected to have dipped by 300 000 barrels last week, although crude stocks were seen rising by 600 000 barrels and petrol increasing by 800 000 barrels, a Reuters poll of analysts showed, ahead of Wednesday’s data.
”We’re all set to have $100 oil by this evening with US distillates stocks expected to fall,” said Dariusz Kowalczyk, an analyst from CFC Seymour in Hong-Kong.
The unrelenting rally in oil prices has prompted US Energy Secretary Sam Bodman to step up the pressure on Opec to pump more crude, although most of the cartel’s members blame speculation and politics — not a supply shortage — for near $100 oil.
The group will meet on December 5 in Abu Dhabi to decide whether to increase production again after its 500 000 barrels per day increase agreed in September failed to tame prices.
Adding support on Tuesday, a Royal Dutch Shell oil sands upgrading plant near Edmonton, Alberta, caught fire late on Monday, forcing units off line. – Reuters