Oil prices rose above US$130 a barrel for the first time yesterday in Asia as supply concerns mounted and the dollar weakened.
Light, sweet crude for July delivery swept to a trading record of US$130.47 a barrel in electronic trade on the New York Mercantile Exchange after closing at US$128.98 in the floor session. It later retreated to US$130.36 a barrel, up US$1.38.
The June contract, which expired on Tuesday, settled overnight at US$129.07 a barrel.
The dollar had become less of a factor as attention turned to supply and demand concerns, but that seems to have changed this week.
“We’ve seen an about-face turn on the dollar in the last couple of days,” said Mark Pervan, senior commodity strategist at Australia & New Zealand Bank in Melbourne. “It looked like it was starting to recover, but I think there’s a less certain outlook at the minute and ... enough reason to be buying commodities as a currency hedge again.”
In Tokyo’s currency market, the dollar was trading at ¥103.25, down from last week. And the euro has started to climb again against the dollar, rising above US$1.5750 in Asian trading.
Investors see hard commodities such as oil as a hedge against inflation and a weak dollar and pour into the crude futures market when the greenback falls. A weak dollar also makes oil less expensive to buyers dealing in other currencies.
The performance yesterday was the 11th time in the last 13 sessions that crude prices have hit trading or closing records, if not both.
Oil futures are now selling for about twice what they were just a year ago. Prices have been propelled by a number of factors, including worries about insufficient supply, soaring global demand and a sliding dollar that has made oil cheaper for some buyers overseas. Speculative buying has also helped push prices higher, analysts say.
Industry observers in recent days have also pointed to especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and earthquake-hit regions are relying on diesel generators for power. The country is also ramping up diesel imports ahead of the Olympics, analysts say, driving up prices.
Besides that, “major Chinese petrochemical companies are really struggling to keep up with demand. The trend is that we’re going to,” Pervan said.
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