Oil posts record $6 gain on weak US dollar

ABS-CBN News

Posted at Jun 06 2008 08:31 AM | Updated as of Jun 06 2008 04:31 PM


Reuters


NEW YORK - Oil surged $6 to over $128 a barrel on Thursday in the largest outright gain on record as signals the European Central Bank may raise interest rates this year pushed down the US dollar.

US crude traded up $6.08 to $128.38 a barrel after settling up $5.49 earlier at 127.79, erasing two days of sharp losses that had been triggered by worries high prices were starting to eat into global demand.

London Brent crude futures settled $5.44 higher at $127.54 a barrel, before trading up to $127.83 in post-settlement activity.

Oil prices have doubled in a year on growing Asian demand and as investors rushed into commodities as a hedge against the weak dollar and inflation, helping drive crude to a record $135 a barrel in May.

"The dollar had a reversal and that helped to support crude," said Tom Bentz, BNP Paribas Commodity Futures Inc.

"Basically, this is still an uptrend that goes back 10 years. It is going to take more than two days of losses and talk of demand destruction to end it."

Thursday's surge came as the greenback fell sharply against the euro on after European Central Bank President Jean-Claude Trichet signaled possible rate hikes later this year.

The comments offset a rare warning this week from the US Federal Reserve on the inflationary risk of a weak dollar, suggesting more interest rate cuts this year are not likely.

"If the ECB does raise rates it has the same impact on the dollar as the US cutting rates. So the feeling is, here we go again with the weaker dollar," said Peter Beutel, president of Cameron Hanover.

Demand worries


Oil's losses this week came from concerns that Asian demand growth -- which has helped underpin the six-year rally -- could falter as some countries ease fuel subsidies.

"You have a large layer of global oil demand which is undertaking cuts in subsidies. Right now, that is what's driving the fundamental worries," said Olivier Jakob, analyst at Petromatrix.

This week, India raised retail petrol and diesel fuel prices by about 10 percent and Malaysia hiked petrol prices by 41 percent, after Taiwan, Sri Lanka and Indonesia reviewed their subsidies last month.

Rising fuel prices in Asia and weaker consumption in the United States, the world's top consumer, are expected to lead to further reductions in estimates for global oil demand growth in 2008.

The International Energy Agency, adviser to 27 industrialized countries, issues its latest forecasts next week and has said it may lower its 2008 demand projection further.

The US Energy Information Administration on Wednesday reported gasoline inventories rose 2.9 million barrels last week while gasoline demand over the past four weeks slumped 1.4 percent versus last year.

Distillate stocks jumped by 2.3 million barrels, while crude stocks fell 4.8 million barrels.