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Business

Oil at $70 a barrel for first time since November

Text by NEWS WIRES

Latest update : 2009-06-09

New York oil prices closed at just over $70 per barrel on Tuesday for the first time since November 2008, amid hopes of an economic recovery and renewed weakness of the US dollar.

AFP - New York oil prices closed Tuesday above 70 dollars per barrel for the first time since November amid hopes of an economic recovery and US dollar weakness.

New York's main futures contract, light sweet crude for delivery in July, ended at 70.01 dollars, up 1.92 dollars from Monday and the highest closing price since November 4.

London Brent North Sea crude for July delivery gained 1.74 dollars to 69.62 dollars.

Analysts said renewed weakness in the dollar amid concerns over staggering US debt and higher US Treasury bond yields -- which could spark higher interest rates -- pushed oil prices higher.

It was "clearly the acceleration and the decline of the value of the dollar, a renewed and remarkable phenomenon," said John Kilduff of MF Global, citing the reason for the higher oil prices despite falling demand.

A weak US currency makes dollar-priced crude cheaper for buyers holding stronger currencies. In turn, that tends to stimulate demand and push the market higher.

The US Energy Information Administration (EIA), the Energy Department's analytical and statistics wing, on Tuesday said global oil demand was expected to fall two percent to 83.7 million barrels a day.

"Instead of blaming speculators or saying that there is no fundamental reason for oil to be where it is, many are finally starting to understand what has been diving oil," said Phil Flynn of Alaron Trading.

"Oil has been driven by the credit crisis. Oil has been driven by the dollar. Oil has been driven by the stimulative and inflationary effects of quantitative easing and record budget and trade deficits," he said.

The United States is using unconventional measures such as mopping up bonds from the market to prevent interest rates from rising, after bringing down federal fund rates to virtually zero percent to stimulate economic recovery.

Data indicating that the worst may be over for the recession-battered US economy, the biggest in the world, are stoking hopes of a rebound for energy demand.

"The bounce in commodity prices is likely to be sustained while... expectations of recovery continue to build," London-based consultancy Capital Economics said in a note.

It cautioned however that "disappointment at the strength of the economic expansion should take the heat out of the latest rally."

"It is a simple story: weak dollar, strong market, plus flow of funds from commodities investors," added Deutsche Bank analyst Adam Sieminski.

After plunging from record highs above 147 dollars last July on supply concerns, oil prices touched multi-year lows in December, at one point nearing 32 dollars a barrel, as the economic slowdown crushed demand for energy.

Date created : 2009-06-09

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