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12 Mar 2008 07:18
Oil prices were close to $109 in Asian trade on Wednesday, underpinned by the United States dollar’s dive to a new low against the euro and supply concerns, dealers said.
In late morning trade, New York’s main contract, light sweet crude for April delivery, traded briefly at $108,90 a barrel, up 15 cents from its record closing high of $108,75 on Tuesday.
At 4am GMT, the contract has eased to $108,64.
New York prices spiked to a new all-time high of $109,72 on Tuesday, putting it to within touching distance of the $110 mark.
London’s Brent North Sea crude for April delivery gained three cents to $105,28 a barrel from its record close of $105,25. The contract traded at a new high of $105,82 on Tuesday.
“The oil market is really soaring to unprecedented heights primarily due to funds and the speculators putting money into oil and other commodities,” said Victor Shum, an analyst with Purvin and Gertz energy consultancy in Singapore.
“Money always looks for better returns,” he said, adding investors who are flush with cash see commodities offering “a hedge against the weakening dollar and inflation.”
The dollar recovered some ground in Asian trading Wednesday, trading at 1,5347 to the euro after sinking to a fresh low of 1,5495 against Tuesday.
With the greenback mired in a slump and Opec refusing to pump more crude despite pressure from the United States, oil prices are likely to continue to trend higher, dealers said.
“At the moment, there doesn’t seem to be anything that is holding it back,” said Gerard Burg, minerals and energy economist at National Australia Bank in Melbourne.
“The fundamental position of the market remains pretty sound,” he said.
Prices have blazed a record-breaking trail in recent weeks, smashing through $107 and $108 in New York on Monday.
“Currently, concerns over a weakening US economy are leading investors to find a haven in commodities as the dollar weakens on expectations of further cuts in US interest rates,” energy consultancy John Hall Associates said.
“This is outweighing the impact of fundamentals” of supply and demand, they added.
The Paris-based International Energy Agency also warned that high prices would likely be a reality for some time to come.
“We are in an era of higher oil prices,” the IEA said in a monthly market report.
Opec’s decision to keep its production quotas at current levels despite pressure from the world’s biggest energy user, the United States, is also lending support to market, dealers said.
The Organisation of the Petroleum Exporting Countries decided at a policy meeting last week to keep its daily output target of 29,67-million barrels despite calls by US President George Bush for it to review boosting output.
Opec, which produces 40% of the world’s crude, blamed the high cost of oil on speculative buying as investors seek hedges against a weakening dollar and rising inflationary pressures.
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