Oil hits record over $101 on OPEC and funds

NEW YORK Wed Feb 20, 2008 4:59pm EST

An oil rig in a file photo. Oil rose on Tuesday to the highest level in a month, above $98 a barrel, driven by expectations that supplies will be tight. REUTERS/File

An oil rig in a file photo. Oil rose on Tuesday to the highest level in a month, above $98 a barrel, driven by expectations that supplies will be tight.

Credit: Reuters/File

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Oil breaks $100 record

Tue, Feb 19 2008

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NEW YORK (Reuters) - Oil vaulted to a record over $101 a barrel on Wednesday as OPEC supply concerns and hedge fund buying countered worries about the U.S. economy.

U.S. crude ended up 74 cents at $100.74 barrel, the top settlement on record, after hitting an all-time high of $101.32 a barrel earlier in the day. The gains sent crude near the all-time inflation adjusted high of $101.70 hit in April 1980, a year after the Iranian revolution, according to the International Energy Agency.

London Brent settled 14 cents lower at $98.42 a barrel.

The rise extended a record rally that sent crude to $100.10 on Tuesday, on expectations the Organization of Petroleum Exporting Countries will hold output levels steady or even reduce them when it meets next month.

Analysts said a rush of buying by funds seeking a hedge against inflation helped push oil to new highs, with further support coming from supply uncertainty from OPEC members Nigeria and Venezuela.

"Traders are going into the oil market because it's what is causing the inflation. and those assets are most likely to appreciate," said Rob Kurzatkowski, futures analyst with optionsXpress.

"It has almost become a self-fulfilling prophecy with crude -- everyone is worried about inflation so they dump their money into crude oil which is causing inflation to ramp up."

A steady rise in U.S. consumer prices in January pointed to persistent inflation pressures despite new signs that the declining housing sector remains a drag on the economy.

The U.S. Consumer Price Index, a broad-based inflation gauge, rose a faster-than-forecast 0.4 percent for a second straight month and was up a steep 4.3 percent in the 12 months through January, a Labor Department report showed.

U.S. crude broke into triple digits for the first time in early January, before prices tumbled amid concerns that wider economic problems could damp demand in the world's top consumer.

"We could still go up a few more dollars, but I do not think it's onwards and upwards," said Mike Wittner, oil analyst at Societe Generale.

"The U.S. is in an economic slowdown. We don't know how deep and for how long. The oil demand concerns are still there."

U.S. retail gasoline demand last week rose slightly from the previous week, as it usually does ahead of a long holiday weekend, MasterCard Advisors said. But demand ahead of Presidents' Day rose by less than it did last year, and gasoline demand plunged 4.4 percent from the same week a year earlier.

A Reuters poll of analysts forecast a 2.3 million barrel rise in U.S. crude inventories in the week to February 15 and a 1.1 million barrel gain in gasoline stocks. Distillates were forecast to have fallen 1.7 million barrels.

Further support for prices came from U.S. refinery problems and the row between Venezuela and Exxon Mobil (XOM.N) over the takeover of a heavy oil project.

The gains came alongside rallies for platinum and soybeans as commodities remained in favor among investors seeking to beat returns in equities and other sluggish financial markets.

(Reporting by Matthew Robinson in New York, Alex Lawler in London; Chua Baizhen in Singapore; Editing by David Gregorio)

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