Oil price storms to $114 per barrel
Foreign Desk Report

LONDON—The price of New York oil surged to a new record high 113.93 dollars a barrel on Tuesday, boosted by a weak US currency and tight energy supplies after OPEC held its demand forecast, traders said. Later Tuesday, New York’s main oil contract, light sweet crude for delivery in May, stood at 113.81 dollars a barrel, up 2.05 dollars from Monday’s finish.
London’s Brent North Sea crude for May struck its own record high of 112.08 dollars a barrel on Tuesday. The contract, which expires at the close, later stood at 111.70 dollars, up 1.86 dollars. “The main reason for the rally is the dollar... but we also have some problems with supply,” said CMC Markets trader Nas Nijjar. “The market is really reacting to the fundamentals” of supply and demand.
He added: “People are talking about (lower US consumption), but there is still strong demand coming out of India and China.” OPEC on Tuesday left unchanged its 2008 estimate of growth in world oil demand, arguing that while high prices and slowing economies would brake demand in major industrialised countries, appetite for crude would remain robust elsewhere.
The cartel, which pumps 40 percent of global crude supplies, added that soaring prices reflected high volatility in the market. However, it said that such volatility was primarily due to “non-fundamental” factors such as financial market turmoil, the weaker dollar and a worsening outlook for the US economy.
“World oil demand is forecast to grow by 1.2 million barrels per day in 2008 to average 86.97 million bpd, unchanged from last month,” the Organisation of Petroleum Exporting countries said in its April monthly report. The slowing world economy and mild winter in some industrialised members of the Organisation for Economic Coooperation and Development were the main reasons behind weak demand, OPEC argued.
Oil prices also remained well supported on Tuesday by the weakening US currency, which encourages demand for dollar-priced crude because it becomes more affordable for foreign buyers. “Overall, crude prices remain well in the short run with the persistent weakness in the dollar, strong fund interest, various supply disruptions and strong demand for distillate fuels from Asia and Europe,” said Sucden analyst Andrey Kryuchenkov.
Meanwhile, US energy stockpiles showed an unexpectedly sharp decline in the week ending April 4, according to the last report from the US Department of Energy. The DoE was to publish its next inventories release on Wednesday. Oil prices had fallen early on Monday owing to expectations of a drop in worldwide crude demand after Group of Seven finance chiefs expressed deep concern over the US economy at a weekend meeting, analysts said.
Oil prices jumped to a new peak near $114 a barrel on Tuesday amid lingering supply worries and weakness in the U.S. dollar, deepening concern in world consumer nations that a spike in energy costs could cause severe economic damage.
Britain’s prime minister, Gordon Brown, on Tuesday called on OPEC members to boost production to counter rapidly rising oil prices, which have shot up 80 percent since a year ago, adding his voice to similar requests from the administration of U.S. President George W. Bush.
“We are not producing enough oil ... and we can take collective action to persuade OPEC and others to get the oil price down,” Brown said in an interview on Sky Television.
U.S. crude rose $1.80 to $113.56 a barrel by 1545 GMT, after touching a record high of $113.93. Oil is up about 18 percent from the start of the year and more than 80 percent since last April. London Brent crude was up $1.73 at $111.57, after hitting a record high of $111.85.
Oil and other commodities have rallied in recent months due to record weakness in the U.S. dollar. A weak dollar tends to raise prices for commodities denominated in that currency by boosting non-U.S. spending power and by attracting investors seeking an inflation hedge.