Oil prices surge to new recordWednesday, April 16, 2008
NEW YORK — Oil prices surged to record highs Wednesday as the weakening U.S. dollar drove up investments into commodities.
Light, sweet crude for May delivery rose as high as $114.53 (U.S.) a barrel in electronic trading on the New York Mercantile Exchange before retreating to $114.46 by midday in Europe, up 67 cents.
The contract closed at a record $113.79 a barrel Tuesday and then jumped in after-hours trading to an all-time high of $114.08.
In London, June Brent crude contracts were up 52 cents to $112.10 a barrel on the ICE Futures exchange, after setting a new record of $112.16 earlier in the session.
Analysts said the oil increases were being caused by euro's new highs against the U.S. currency — $1.5966 per euro — as higher inflation in the euro zone practically eliminated the chances of an interest-rate cut by the European Central Bank.
Annual inflation in euro nations rose to a record 3.6 per cent in March, boosted by higher prices in transport fuel, heating, dairy products and bread, said Eurostat, the EU's statistical agency. It is the highest inflation rate in 16 years.
Olivier Jakob of Petromatrix in Switzerland said there had been a “very strong correlation” between rising oil prices and the weakening dollar in the last few months, which appeared to have been broken at the start of this week.
“Monday and Tuesday crude oil managed to move ahead without the help of the dollar,” Mr. Jakob said. “But once we broke above 1.59 euros per dollar and as we move toward 1.60, there's going to be more buying coming into oil.”
Analysts said growing investor demand for commodities — which have performed better than other financial instruments — also helped prop up prices.
“This is really driven by investors purchasing oil because returns have simply outpaced those of stocks and bonds,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Mr. Shum said he didn't think supply and demand fundamentals were that strong, but added that “oil's price rise seems unstoppable.”
Oil's recent run above $100 a barrel has been largely attributed to a steadily depreciating U.S. currency because a weakening dollar prompts investors to seek a safe haven in hard commodities such as oil and gold.
Traders were awaiting the release of U.S. government data later Wednesday on the state of America's petroleum supplies. Last week's EIA report showed an unexpected drop in crude inventories, which started oil on its way to several records.
The U.S. Energy Information Administration was expected to report later in the day that crude inventories grew 1.5 million barrels last week, according to a survey of analysts by Platts, the energy research arm of McGraw-Hill Cos.
Gasoline inventories were expected to decline 2 million barrels, to post their fifth consecutive weekly drop amid increasing demand for the fuel, the survey showed.
“Implied gasoline demand typically starts to increase at this time of year, but high prices at the pump and a slowing U.S. economy appear to have dented the pace of demand growth,” the Platts report said.
Analysts also projected a 1.7 million barrel drop in distillate stocks, which include heating oil and diesel, while refinery utilization rates were expected to jump 0.9 percentage points to 83.9 per cent.
“The market may choose to focus on the expected product drawdowns and interpret the report as bullish,” Mr. Shum said. “But product inventories in the U.S. are at healthy levels. The declines would simply be because refinery utilization operating rates have not been strong, and that's because refiners are responding to weak demand.”
Crude prices were also supported by reports of a number of supply disruptions.
Attracting the most attention was the closure of Mexico's three main oil-exporting ports on the Gulf Coast because of bad weather that started Sunday. Only one of the ports remained closed Tuesday, according to Mexico's Communications and Transportation Department.
In other Nymex trading, heating oil futures added 2.61 cents to $3.3000 a gallon while gasoline prices rose 0.65 cent to $2.8875 a gallon. Natural gas futures were up 7.5 cents to $10.280 per 1,000 cubic feet.
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