Oil hits record 111 dlrs as price rally accelerates

Oil prices hit a record 111.00 dollars per barrel Thursday amid an accelerating price rally which traders say has been fueled by a sharp fall in the value of the US dollar and supply concerns.

Saudi Foreign Minister Prince Saud al-Faisal said speculators were largely responsible for the price peaks as some analysts cautioned that the market could be in a price bubble.

New York’s main oil futures contract, light sweet crude for delivery in April, closed at an all-time high of 110.33 dollars per barrel, marking a gain of 41 cents from Wednesday’s closing level.

In earlier frenzied trading, however, the contract had struck a record 111.00 dollars.

In London, Brent North Sea crude for April delivery settled up 1.27 dollars at 107.54 dollars after striking an all-time intraday high of 107.88 dollars.

Prince Faisal played down some analysts suggestions that supply worries had boosted prices.

“The current turbulence on the oil market is due in large part to speculation and has nothing to do with market fundamentals, which are stable,” the prince told the Organization of the Islamic Conference summit in Dakar.

Saudi Arabia is a key member of the Organization of the Petroleum Exporting Countries (OPEC) and the world’s biggest oil producer.

“Most of the explanation of high prices is summarized in a weak dollar, limited spare production capacity and speculation in the futures market,” James Williams, a market analyst at WTRG Economics, said in a briefing note.

Other analysts agreed that the plummeting dollar had stoked oil prices higher.

“Oil is being use as a hedge against the dollar, no more and no less. And at some point, oil will disconnect as rising supply and slowing demand start to fall. Oil is in a bubble,” said Phil Flynn, a market analyst at Alaron Trading.

The dollar’s decline has enabled speculators armed with stronger currencies to snap up additional oil purchases as oil is priced in dollars. Some market participants believe oil could also be a good investment as the dollar falls.

The beleagured US currency plunged to another all-time low against the euro, which struck a record high 1.5625 dollars in earlier trading before retreating slightly.

Some economists say the dramatic spike in world oil prices is fueling inflationary pressures in the United States, the world’s biggest oil importer, which is already battling other economic problems including a deep housing slump.

If the US economic slowdown worsens into a recession, analysts say oil demand could suffer and that prices could retreat.

Other analysts said the looming end of the northern hemisphere winter could also see a turnaround in the recent price gains.

The International Energy Agency, which seeks to coordinate energy policy among the world’s leading industrialised nations, was to hold a meeting of oil industry experts on Monday to review the latest price spikes.

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