Apr 16, 2008 7:24 am US/Eastern
Falling Dollar Sends Oil Prices To New Record
(AP)
Oil prices are surging to record highs as the weakening U.S. dollar drives investors to dump money into commodities.
Light, sweet crude for May delivery rose 67 cents Wednesday to $114.46 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. On Tuesday, the contract had risen to $114.08.
In London, Brent crude contracts are up 69 cents to $112.27 a barrel on the ICE Futures exchange.
The oil increases are being influenced by severe weakness in the dollar. The dollar hit a new record low of $1.5966 versus the euro in early Wednesday trading.
The dollar is plumbing new depths as wholesale inflation came in triple what was expected and ahead of new consumer data to be released Wednesday.
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. Shum said he didn't think supply and demand fundamentals were that strong, but added that "oil's price rise seems unstoppable."
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 percent.
"The market may choose to focus on the expected product drawdowns and interpret the report as bullish," 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.
(© 2010 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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