Oil rallies to record $110 as dollar plumbs new low

By Matthew Robinson

NEW YORK (Reuters) - Oil pierced $110 a barrel on Wednesday, marking the sixth straight day of record highs, as the dollar sank to new lows and outweighed large increases in U.S. crude inventories.

Investors have raced into commodities over the past month to hedge against inflation and the slumping dollar, sending oil to fresh peaks despite concerns about the economic health of top oil consumer the United States and rising fuel stocks.

U.S. crude settled up $1.17 at $109.92 after racing to an all-time high of $110.20 earlier. London Brent gained $1.02 to settle at $106.27 a barrel, off a record $106.41 hit earlier in the day.

"There has been a huge detachment between price and fundamentals in the energy markets," said Rob Kurzatkowski, futures analyst at optionsXpress. "It has been more of a dollar play of late."

Oil fell earlier on Wednesday after U.S. government inventory data showed a sharp 6.2 million-barrel build in crude stocks last week and another gain in gasoline levels, now at 15 year highs. <EIA/S>

Analysts said crude's rise despite swelling inventories highlights the disconnect between supply and demand fundamentals and the current, speculator-driven price.

"It is a ridiculously bearish report," said Stephen Schork, editor of The Schork Report.

"We have major concerns regarding the economy in the United States, rising supply, falling demand. Why is crude oil trading at over $100 per barrel? It makes no fundamental sense."