Oil Rises Above $110 to Record as the Dollar Falls Against Euro
By Mark Shenk
March 12 (Bloomberg) -- Crude oil rose above $110 a barrel to a record in New York after the dollar weakened to an all-time low against the euro, prompting investors to buy commodities.
The dollar fell to $1.556 per euro, the lowest since the currency's 1999 debut. The declining U.S. currency has spurred investors to move funds into commodities such as oil and gold. Prices fell earlier after a government report showed that U.S. oil and gasoline supplies rose.
``We've rebounded on the decline of the dollar once again,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``People are buying oil as a hedge against the weakening U.S. dollar or perceived inflation risk, not because of any shortage of oil.''
Crude oil for April delivery rose $1.17, or 1.1 percent, to settle at $109.92 a barrel at 2:50 p.m. on the New York Mercantile Exchange, after dropping as low as $107.09. Oil touched $110.20 a barrel, the highest intraday price since the futures began trading in 1983.
Brent crude for April settlement rose $1.02, or 1 percent, to close at a record $106.27 a barrel on London's ICE Futures Europe exchange. Futures reached $106.41 a barrel today, an intraday record.
``Oil is being purchased because of how it looks compared to other asset classes, not because of its fundamentals,'' said Antoine Halff, head of energy research at New York-based Newedge USA LLC. ``The fall of the dollar has been a very strong driver of the commodity rally this year.''
Oil in New York surged 87 percent over the past year as the Standard & Poor's 500 Index dropped 6.8 percent and the Dow Jones Industrial Average declined 1.6 percent.
Options Contracts
Bets that April crude oil will fall below $105 a barrel were the most actively traded options contracts on the Nymex as of 2:25 p.m. New York time today. The put contracts, which represent the right to sell oil at that price, fell 34 cents to 14 cents, or $140 per contract, according to data compiled by Bloomberg. One options contract is for 1,000 barrels of oil.
Interest in the contract has climbed this week, peaking yesterday, when traders were holding options to sell 2.52 million barrels of crude at $105 each. Oil closed above $105 a barrel for the first time on March 6.
April options on the Nymex will expire on March 14.
U.S. Inventories
Stockpiles climbed 6.18 million barrels to 311.6 million in the week ended March 7, the Energy Department said. A 1.68 million-barrel gain was forecast, according to the median of responses in a Bloomberg News survey. Gasoline inventories rose 1.69 million barrels to 236 million, the highest since 1993.
Gasoline for April delivery rose 0.25 cent to $2.7286 a gallon in New York, a record settlement price. Yesterday, futures touched $2.7435, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.
Supplies of distillate fuels, a category that includes heating oil and diesel, fell 1.23 million barrels to 116.4 million barrels last week, the report showed.
Heating oil for April delivery rose 2.87 cents, or 1 percent, to $3.0244 a gallon, a record close. The contract touched $3.0295, the highest since trading began in 1978.
U.S. crude-oil inventories in the week ended March 7 were 1.9 percent above the five-year average for the period, the department said. Gasoline stockpiles were 11 percent above the five-year average.
Falling Demand
Total implied fuel demand averaged 20.5 million barrels a day in the past four weeks, down 2.7 percent from a year earlier, the report showed.
U.S. crude-oil use typically falls at this time of year when refiners schedule repairs and upgrades as U.S. heating-fuel demand slows and before warmer weather spurs an increase in gasoline consumption. Refineries operated at 85 percent of capacity last week, down 0.9 percentage point from the week ended Feb. 29.
The Energy Department released its weekly report on inventories at 10:30 a.m. in Washington.
U.S. intelligence agencies are investigating a potential link between Venezuela and a terrorist group, according to a White House spokesman, who declined to say whether the U.S. will add the nation to a list of those sponsoring terrorism. The South American country was the fourth-largest oil supplier to the U.S. in 2007, according to the Energy Department.
``We don't discuss the process by which states are added to the list of state sponsors of terror,'' White House spokesman Gordon Johndroe said today in an e-mail.
U.S. authorities are looking into material seized by Colombian officials this month that Florida Republican Representative Connie Mack says may be evidence that Venezuelan President Hugo Chavez aids the Revolutionary Armed Forces of Colombia, or FARC, designated by the U.S. and Europe as a terrorist organization.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Last Updated: March 12, 2008 15:53 EDT
