Oil prices break fresh record high near $110
Foreign Desk Report

LONDON—Oil prices struck a record high of 109.72 dollars per barrel on Tuesday after the dollar hit a fresh all-time low against the euro and amid persistent energy supply concerns, traders said.
New York’s main oil contract, light sweet crude for delivery in April, soared to the historic level, beating the previous peak of 108.21 dollar that was set on Monday. Also on Tuesday, Brent North Sea crude for April hit a record high 105.82 dollars on barrel, beating the prior high of 104.42 dollars touched on Monday.
In the foreign exchange market, the European single currency surged to a record high 1.5495 dollars. A weaker US currency tends to increase demand for dollar-denominated oil as it becomes cheaper for buyers using stronger currencies. Oil prices are also heading higher because investors are seeking a safe place for their cash amid fears of rising inflation and a US recession, analysts said.
“Crude futures held firm (on Tuesday), extending yesterday’s rally and reaching fresh record highs in both London and New York, still underpinned by strong demand for dollar-denominated commodities and with oil seen as a good hedge against inflation,” said Sucden analyst Andrey Kryuchenkov.
“Inflation fears are still very strong, outweighing prospects of a slower growth in the US and lower seasonal demand for oil in the second quarter.” At the same time, the oil market is under intense pressure from stretched supplies and demand from the United States — the world’s biggest energy consuming nation — and Asian powerhouses China and India.
In recent days and weeks, oil prices have blazed a record-breaking trail, smashing through 107 and 108 dollars in New York on Monday alone. “Currently concerns over a weakening US economy are leading investors to find a haven in commodities as the dollar weakens on expectations of further cuts in US interest rates,” energy consultancy John Hall Associates wrote in a note to clients.
“This is outweighing the impact of fundamentals” of supply and demand, they added. In Paris on Tuesday, meanwhile, the International Energy Agency warned that high prices were here to stay. “We are in an era of higher oil prices,” the IEA said in a monthly market report. The IEA trimmed its monthly estimate for world oil demand this year to 87.5 million barrels per day “with downward pressures from weaker economic growth in the OECD mostly offset by stronger former Soviet Union (FSU) projections.”
Oil demand was forecast to increase by 1.7 million barrels per day in 2008 or 2.0 percent from demand in 2007, which grew by 1.1 percent.
The price of New York crude on Monday fell further from its record high of 106.54 dollars on concerns that energy demand will drop in the United States because of its weak economy, analysts said. Prices also dropped on easing geopolitical tensions involving crude producer Venezuela, they added. New York’s main oil contract, light sweet crude for delivery in April, slid 62 cents to 104.53 dollars per barrel. It had closed lower on Friday after reaching its record peak the same day.
On Monday, London’s Brent North Sea crude for April delivery shed 50 cents to reach 101.88 dollars. It had struck an historic peak of 103.98 dollars per barrel Friday. “The strength of oil prices is not related to market fundamentals now, so the oil market is prone to corrections when more poor economic data comes out,” said Victor Shum, an analyst with energy consultancy Purvin and Gertz.
“If more of such bad economic data comes out, it will weigh down on the oil market as it triggers investors to exit oil as fast as they came in,” he said. Markets are banking on a US recession after official data published Friday showed that the US economy lost 63,000 jobs in February, the steepest drop since March 2003. Analysts say that a recession would lead to a drop in oil demand from the United States, which is the world’s biggest energy consumer.