Oil Rises to a Record as Dollar Extends Weakness to Euro
By Mark Shenk
Crude oil and gold rose to records after the dollar dropped to an all-time low against the euro, increasing the appeal of commodities as an alternative investment.
Oil has risen 27 percent since Sept. 18 when the first of five cuts to the U.S. benchmark interest rate sent the dollar lower. Traders purchase energy and metals as an inflation hedge when the U.S. currency weakens. Prices also rose on reports that the U.S. launched an air strike in Somalia and that Venezuela sent tanks to its border with Colombia.
``The energy market has caught the inflation wave once again as a reaction to new lows for the dollar versus the euro,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The U.S. military action in Somalia reminds participants of the geopolitical risk attendant to oil production globally.''
Crude oil for April delivery rose $1.98, or 1.9 percent, to $103.82 a barrel at 10:01 a.m. on the New York Mercantile Exchange. Futures surged to $103.95 a barrel, the highest since trading began in 1983. Prices are up 68 percent from a year ago.
Brent crude for April settlement rose $2.07, or 2.1 percent, to $102.17 a barrel on London's ICE Futures Europe exchange. Futures reached a record $103.29 a barrel today.
``There are still plenty of reasons to buy, and the only compelling reason to sell is the U.S. economic outlook,'' Kilduff said.
Gold futures for April delivery climbed $15.20, or 1.6 percent, to $990.20 an ounce on the Comex division of the Nymex. Futures reached a record $991 an ounce today.
Shokri Ghanem, chairman of Libya's National Oil Corp., speaking in Vienna before OPEC's meeting this week, said he has ``no complaint'' with oil at $100 a barrel. Twenty-nine of 30 analysts polled by Bloomberg expect the Organization of Petroleum Exporting Countries will make no change to production targets.
The dollar tumbled to $1.5191 per euro, from $1.5179 on Feb. 29, when it touched $1.5239, the weakest since the European currency's debut in January 1999. Declines in the dollar's value make commodities priced in the U.S. currency, such as oil, appear undervalued and appealing as a hedge against inflation.
Petroleum-product prices followed crude oil higher today. Crude-oil is responsible for more than half of the costs for both gasoline and heating oil.
Gasoline for April delivery climbed 5.34 cents, or 2 percent, to $2.7235 a gallon in New York. Futures touched $2.7325, a record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.
Heating oil for April delivery rose 5.68 cents, or 2 percent, to $2.8637 a gallon in New York. The contract touched a record $2.8739 a gallon.