Oil prices yesterday were close to an overnight record above US$110 a barrel as investors looked to commodities as a safe haven against the US dollar's slide.
In Asia, the dollar sank to a 12-year low against the yen and hit a record low against the euro amid concerns about the flagging US economy. Many analysts believe the greenback's decline is the reason crude futures have surged to new records in 11 of the past 12 sessions, despite the fact that crude supplies have risen 10.2 percent since early January.
Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak.
"Oil and other commodities have an intrinsic value so that to the extent that the US dollar depreciates, [oil] becomes relatively cheaper in terms of other currencies, such as the euro," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "So you get an adjustment to compensate for that effect."
Oil prices initially dropped on Wednesday in New York trading after the US Energy Information Administration said crude supplies rose 6.2 million barrels last week, more than three times the 1.6 million barrels forecast by analysts surveyed by Dow Jones Newswires. But buyers quickly returned to the market.
Light, sweet crude for delivery next month fell US$0.12 to US$109.80 a barrel in electronic trading on the New York Mercantile Exchange by late afternoon in Singapore. It hit US$110.12 a barrel earlier in the session, just below Wednesday's record trading high of US$110.20 a barrel.