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Oil hits new highs

Latest update : 2008-02-29

The barrel of crude traded at $102.80 in New York on Thursday, breaking yet another record. The dollar's decline due to the deteriorating US economy is largely responsible for a price bubble that could collapse as rapidly as it rose, insiders say.

World oil traded near fresh record levels in Asia on Friday as speculators piled into the market on the back of a sharp decline in the US dollar following a weak report on US economic growth, dealers said.
   
In afternoon trade, New York's main contract, light sweet crude for delivery in April, was 21 cents higher at 102.80 dollars per barrel.
   
The contract had surged 2.95 dollars to close at a record 102.59 dollars per barrel in New York on Thursday, eclipsing the prior record of 100.88 dollars reached on Tuesday.
   
The benchmark New York contract touched an all-time intraday peak of 102.74 dollars on Thursday, and after floor trading closed reached 102.97 dollars in electronic trade.
   
Brent North Sea crude for April was seven cents higher at 100.97 against its all-time high of 100.90 dollars a barrel reached on Thursday. The contract had struck an intraday record of 101.27 dollars earlier Thursday.
   
"The fresh record prices coincides with the flow of investor money into commodities, due to the weak US dollar and the increasing threats of inflation in the US," said Victor Shum, senior principal at Purvin and Gertz energy consultants in Singapore.
   
"The surge in crude oil futures has little to do with market fundamentals now. A price bubble is emerging, and the market faces a risk that crude oil pricing could also collapse as fast as it rose," Shum said.
   
The dollar's plunge to an all-time low against the euro made dollar-denominated crude oil cheaper for investors using stronger currencies. The euro on Thursday crossed 1.52 dollars for the first time.
   
The spiking oil prices have stoked inflation in the United States, the world's biggest energy consumer, raising concerns about the Federal Reserve's interest-rate slashing campaign aimed at spurring sluggish growth.
   
The US Commerce Department said the United States economy expanded at a sluggish 0.6 percent annual pace in the fourth quarter, in a report that left unrevised its prior estimate of output growth.
   
Analysts had expected a slight upward revision to 0.8 percent for the quarter, which remains the weakest since late 2002.
   
Runaway price levels have sparked widespread speculation that OPEC, the crude exporters' cartel, will maintain current output levels at a production meeting next week, analysts said.
   
Ministers from the 13-nation Organisation of the Petroleum Exporting Countries (OPEC) convene in Vienna next Wednesday to decide on output quotas as the northern hemisphere winter, traditionally when demand peaks, draws to a close.
   
A top official from OPEC member Nigeria said the cartel was unlikely to cut output if prices remain around record levels.
   
"If prices don't fall, I don't think that they will lower their production now," an oil adviser to the Nigerian president, Rilwanu Lukman, told AFP.
   
"If prices remain between 90 and 100 dollars, I think it is unlikely that they do something," he said.
   
Concern that OPEC could reduce output has been one of the factors driving prices above 100 dollars this week, analysts said.
   
On Thursday OPEC's smallest producer Ecuador suspended its oil exports because a landslide cut off its main pipeline, state-run Petroecuador oil company said.
   
Ecuador extracts 511,000 barrels of oil per day, of which 67 percent is exported.
   
Shum said the high global oil prices will continue until OPEC's meeting set for March 5.
   
Many oil industry experts now expect the cartel will hold its official daily output at 29.67 million oil barrels.
   
Shum agreed they will hold production steady, "which is supportive of prices."
 

Date created : 2008-02-29

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