Oil Tops $130/ Barrel for First Time

Oil prices rose above $130 a barrel Wednesday for the first time, as supply concerns mounted and the dollar weakened.

Light, sweet crude for July delivery hit a record $130.47 a barrel in electronic trade on the New York Mercantile Exchange after closing at $128.98 in the floor session. By afternoon in Europe, it had retreated to $129.77 a barrel, up 79 cents.

The June contract, which expired Tuesday, settled overnight at $129.07 a barrel.

In London, July Brent crude was up $1.17 to $129.01 a barrel on the ICE Futures exchange in London. Earlier in the session, Brent rose as high as $129.92.

The dollar had become less of a factor as attention turned to supply and demand concerns, but that seems to have changed this week.

"We've seen an about-face turn on the dollar in the last couple of days," said Mark Pervan, senior commodity strategist at Australia & New Zealand Bank in Melbourne. "It looked like it was starting to recover, but I think there's a less certain outlook at the minute and ... enough reason to be buying commodities as a currency hedge again."

On Wednesday, the dollar was trading at 103.26 yen, down from the 104-105 range last week, and the euro has started to climb again against the dollar, rising to $1.5755 by the early afternoon in Europe, up from $1.5669 late Tuesday in New York.

Investors see hard commodities such as oil as a hedge against inflation and a weak dollar and pour into the crude futures market when the greenback falls. A weak dollar also makes oil less expensive to buyers dealing in other currencies.

The performance Wednesday was the 11th time in the last 13 sessions that crude prices have hit trading or closing records, if not both.

Oil futures are now selling for about twice what they were just a year ago. Prices have been propelled by a number of factors, including worries about insufficient supply, soaring global demand and a sliding dollar that has made oil cheaper for some buyers overseas. Speculative buying has also helped push prices higher, analysts say.

Industry observers in recent days have also pointed to especially strong demand for diesel in China, where power plants in some areas are running desperately short of coal and certain earthquake-hit regions are relying on diesel generators for power. The country is also ramping up diesel imports ahead of the Olympics, analysts say, driving up prices.

Besides that, "major Chinese petrochemical companies are really struggling to keep up with demand. The trend is that we're going to continue to see pretty strong crude imports (from China) going forward," Pervan said. "That's what the market is really getting on board."

For the second time this week, a high-ranking official in the Organization of Petroleum Exporting Countries suggested oil output would not increase any time soon.

Venezuela's state-run news agency quoted OPEC chief Abdalla Salem el-Badri as saying Tuesday that "there's no scarcity of oil in the market" because international oil supplies were very high.

The statement from El-Badri, who met in Caracas with Venezuelan President Hugo Chavez, echoed a comment by Algerian Energy Minister Chakib Khelil, OPEC's current president, who said Monday that the group would not boost output before the September meeting.

That added to worries about gasoline and diesel supplies at the start of the summer driving season in the U.S., where retail prices for the motor fuels are already at record levels. Many analysts expect prices for both fuels will continue to rise.

In other Nymex trading, heating oil futures rose 4 cents to $3.8150 a gallon ($1.004 a liter) while gasoline prices rose 2.06 cents to $3.3250 a gallon ($0.875 a liter). Natural gas futures, meanwhile, rose 16.5 cents to $11.530 per 1,000 cubic feet.

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Associated Press Business Writer Thomas Hogue in Bangkok, Thailand, contributed to this report.

© 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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