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Oil prices steady amid rush to crude

Oil prices held steady yesterday after rising to a record above US$101 a barrel overnight as investors poured more cash into crude and other commodities as a hedge against inflation.

Oil futures on Wednesday pushed briefly past US$101 a barrel after the US Federal Reserve lowered its forecast for US economic growth this year, convincing energy investors that the central bank will slash interest rates further.

"Investors are going into commodities for a safe haven, because they think commodities may perform better than equities and also may be hedges against inflation," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Lower interest rates can help the economy but tend to weaken the dollar, encouraging investors to shift funds into hard assets like gold or oil as a safeguard against inflation. After oil rallied above US$100 a barrel, precious metals such as gold and silver also hit records.

The possible rate cut is also viewed as hopeful of bolstering a flagging U.S. economy, which would assuage fears of weakening crude demand.

"We are expecting the US Federal Reserve will cut interest rates further," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "That will help mitigate against the risks of US recession, and would likely be supportive for the oil price."

Yesterday, light, sweet crude for April delivery added US$0.18 to US$99.88 a barrel in Asian electronic trading on the New York Mercantile Exchange by midday in Singapore.

The March contract, which expired on Wednesday, rose overnight as high as US$101.32 a barrel, a new trading record. It settled at a record close of US$100.74 a barrel.

The April contract -- traded in greater volumes on Wednesday -- was unchanged at US$99.70 a barrel.

Analysts said the rise this week in oil prices was not based on supply and demand fundamentals and that they expected increasing price volatility.
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