Oil prices gush to new highs

Posted by Oil Tycoon

March 10, 2008

NEW YORK (AFP) - Oil prices struck double-barreled highs on Monday on concerns about dollar weakness and tight supplies as speculators bet on the market rally to go higher, traders said.

Both the New York and London benchmark contracts smashed intraday and closing records as US President George W. Bush’s administration signaled that Vice President Dick Cheney personally would urge OPEC kingpin Saudi Arabia to convince the cartel to boost output.

New York’s main contract, light sweet crude for April delivery, soared over 107 dollars a barrel for the first time and then crossed 108 dollars, striking an all-time high of 108.21 dollars.

The New York benchmark contract also set a new closing record, up 2.75 dollars at 107.90 dollars, pulverizing its prior record close of 105.47 dollars on Thursday.

In London, Brent North Sea crude for April hit a record high of 104.42 dollars a barrel before settling with a gain of 1.78 dollars at a record 104.16 dollars. On Thursday it had settled at 102.61 dollars.

“Crude continues on this dollar-driven rally and we are creating a bubble that at some point will burst,” said Phil Flynn, an analyst at Alaron Trading.

“When that might be is hard to predict but when it does, the resulting sell-off will be huge. The problem is that until it does we obviously can still go higher.”

The latest spike came as Bush’s administration said that Cheney would address the issue of soaring oil prices with Saudi Arabia on his trip to the Middle East next week.

“I’m sure that energy issues will come up,” White House spokeswoman Dana Perino said. “Obviously we want to see an increase in production.”

The Organization of the Petroleum Exporting Countries, which produces 40 percent of the world’s crude, decided at a policy meeting last week to maintain its daily production target of 29.67 million barrels despite calls by Bush and others to raise production to help ease prices.

OPEC blamed the high cost of crude on speculative buying as investors seek a hedge against a weakening dollar and rising inflation.

The weak US currency, which fell to a new low of 1.5464 against the euro on Friday, encourages demand for dollar-priced commodities like oil because it makes them cheaper for buyers using other currencies.

“Tight fundamentals remain the dominant force underpinning prices in our view, with the combination of disappointing non-OPEC production, solid non-OECD demand and defensive OPEC output policy all exerting upward pressure on prices,” said Barclays Capital analyst Kevin Norrish.

Prices had dropped in early trade on Monday amid concerns that energy demand would slip in the United States because of its weak economy, analysts said.

Oil prices briefly had fallen on Monday after Latin America’s largest oil exporter, Venezuela, on Sunday normalized diplomatic ties with neighboring Colombia, a week after it severed relations over Bogota’s cross-border raid into Ecuador — which is also a producer of oil.

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