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Oil jumps to record highs on sliding dollar
PARIS
Petroleumworld.com Feb. 29 2008Oil prices skyrocketed Thursday to record peaks as speculators piled into the market on the back of a sharp decline in the dollar after a disappointing weak report on US economic growth.
New York's main contract, light sweet crude for delivery in April, shot up 2.95 dollars to close at a record 102.59 dollars per barrel, just two days after the prior record of 100.88 dollars.
The benchmark New York contract earlier Thursday had hit an all-time intraday peak at 102.74 dollars, and after the market close reached 102.97 dollars in electronic trade.
In London, Brent North Sea crude for April advanced 2.63 dollars to settle at an all-time high of 100.90 dollars a barrel, after striking an intraday record of 101.27 dollars.
Driving oil prices higher was the dollar's plunge to an all-time low against the euro, making dollar-denominated crude oil cheaper for investors using stronger currencies.
The euro on Thursday crossed 1.52 dollars for the first time.
The spiking oil prices have stoked inflation in the United States, the world's biggest energy consumer, raising concerns about the Federal Reserve's interest-rate slashing campaign aimed at spurring sluggish growth.
The US Commerce Department said the US economy expanded at a sluggish 0.6 percent annual pace in the fourth quarter, leaving its prior estimate of output growth at the weakest since late 2002 unchanged.
Analysts had expected a slight upward revision to 0.8 percent for the quarter.
Normally economic weakness in the world's biggest economy would be expected to weigh on oil prices because it would lower demand for oil, but the dollar's decline appeared to trump such concerns, analysts said.
"Larger market forces have rewritten the laws of gravity as commodity price inflationary pressures have over-ruled the basic laws of supply and demand," said Phil Flynn at Alaron Trading.
"Even with clear signs of demand destruction in the US and some worrying signs of slowing in Japan and even Europe, oil prices have surged along with inventories."
"Lately the focus has been on inflation as the Fed printed more and more dollars and thus we saw the value of the greenback fall, driving up those wonderful commodity prices," he added.
Michael Fitzpatrick at MF Global said that any technical correction coiuld be limited by the dollar's downward spiral, "attracting more speculative buyers to the crude oil market."
"Aggressive buying behavior by investors into commodity markets, including energies, will probably not be shelved anytime soon, especially since inflation fears have been stirred up again, as investors continue to seek diversification," Fitzpatrick said.
Runaway price levels have sparked widespread speculation that OPEC, the crude exporters' cartel, will maintain current output levels at a keenly awaited production meeting next week, analysts said.Ministers from the 13-nation Organization of the Petroleum Exporting Countries (OPEC) convene in Vienna next Wednesday to decide on output quotas as the northern hemisphere winter, traditionally when demand peaks, draws to a close.
A top official from OPEC member Nigeria said that the cartel was unlikely to cut output if prices remain around record levels.
" If prices don't fall, I don't think that they will lower their production now," an oil adviser to the Nigerian president, Rilwanu Lukman, told AFP.
" If prices remain between 90 and 100 dollars, I think it is unlikely that they do something," he said.
Concern that OPEC could reduce output has been one of the factors driving prices above 100 dollars this week, analysts said.
Many oil industry experts now expect that OPEC will hold its official daily output at 29.67 million oil barrels.
Story from AFP
AFP 28 2048 GMT 02 08
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