Oil passes $109 a barrel
LONDON: Oil rose to a record high for the fifth day in a row on Tuesday, propeled by investor flows into oil and other commodities partly to hedge against inflation and the weak dollar.
U.S. light crude for April delivery was up 85 cents at $108.75 a barrel after touching a record $109.20 a barrel.
London Brent crude was up 90 cents at $105.06, after touching a record high of $105.40.
“Concerns about inflation are very strong. Hedge funds are selling stocks and buying commodities, especially oil and gold, because the U.S. dollar is weakening,” said Takeda Makoto, an analyst at Bansei Securities.
The U.S. dollar steadied on Tuesday, but has been at record lows in anticipation of more interest cuts by the Federal Reserve to spur the flagging economy in the United States, the worlds top energy consumer.
Prices had dipped slightly after the International Energy Agency said world oil demand would be less than expected this year because of slower economic growth in industrialized countries and due to record prices.
“Theres quite a big downward revision to demand in industrialized countries,” said Lawrence Eagles, head of the oil industry and markets division at the IEA, which advises 27 industrialized countries.
Oil has set a string of record highs as a bullish long-term supply outlook for oil and other commodities has continued to suck in investment flows looking for alternatives to equities and bonds that are overshadowed by the credit market crises and fears of a U.S. slowdown.
“Looking at the big picture, we believe that the recent price surges in the commodity sector have been for the most part triggered by large capital inflows from institutional investors, hedge funds above all,” Tiberius Asset Management said in a research note.
Goldman Sachs warned oil was at risk from substantial fund liquidation due to cyclical fundamental weaknesses in the next few months, but the investment bank remains constructive on energy for the long-term.
“We believe that the combination of low economic growth in the United States and high oil price inflation will have its strongest impact on demand in the first half of the year,” Goldman said in a research note.
The latest update on fuel supplies in the United States, due on Wednesday, is forecast to show a 1.9 million barrel rise in crude oil inventories last week, according to a preliminary Reuters poll.
Analysts also expected a 1.9 million barrel decline in distillate stocks. Gasoline stocks were expected to have fallen 500,000 barrels, which would be the first dip in 18 weeks.
