LONDON, 7 November 2007 — Oil leapt more than $3 a barrel to a new record high of $97 yesterday, closing in on the $100 mark, as a weak US dollar and tight fuel stocks prompted buying by investors. Investors, wary of global equity markets where the full impact of the credit crunch has yet to become clear, see oil as a good bet, especially given tight fuel supplies in the run up to the northern hemisphere winter.
Fears of tight supplies were driven home yesterday as the US Energy Information Administration said world oil demand growth in the fourth quarter of 2007 and the first quarter of 2008 will be 40,000 barrels per day higher than its prior forecast.
US crude rose $2.86 to $96.85 a barrel by 1552 GMT, putting it on course to test $100. London Brent crude rose $2.67 to $93.16 a barrel, off highs of $93.38.
The prospect of more fallout from the US subprime crisis sent oil tumbling $2 a barrel on Monday as investors worried that slowing economic growth in the United States would curb demand for fuel.
Those concerns persisted yesterday, pushing the dollar to record lows against a basket of major currencies. But stock markets recovered and gold hit a 28-year peak. “We seem to be seeing a tug of war between people taking profits and those coming into buy into dips, and they are effectively saying we can go past $100,” said Mike Wittner at Societe Generale. Oil’s surge from below $70 in mid-August has been stoked by a weak dollar and speculative inflows into oil and other commodities — and extended by evidence of dwindling supply.
US crude oil stocks were expected to have fallen a further 1.6 million barrels last week due to disruptions to short-haul Mexican shipments, a preliminary Reuters poll found.
Distillate inventories were seen falling by 700,000 barrels and gasoline stocks by 100,000 barrels. Inventories in Japan, the world’s third-largest consumer, are also running below comfort levels. “The temperatures in December in the north are expected to be below normal, so that is also a concern for us with the low inventories,” said Ken Hasegawa of Fimat, Japan.
US Energy Secretary Sam Bodman said current prices were a “terrible problem” for consumers, adding he hoped producer group OPEC would ramp up output to ease prices. Many OPEC officials have rejected that call.
Venezuelan Oil Minister Rafael Ramirez on Monday echoed other officials, saying high prices were due to speculation and geopolitical tensions, not a shortfall in supplies.
Meanwhile, the dollar plunged yesterday to a new all-time low against the euro on fears for the future of the US financial sector, while gold hit $820 an ounce, its highest reading since 1980. In early deals, the single European currency surged to an historic 1.4543 dollars. It later traded at 1.4538 dollars, which compared with 1.4464 in New York late on Monday.
The price of gold rose to $820 an ounce yesterday, its highest level since 1980, as the precious metal was lifted by the weak dollar and fears of inflation spurred by record high crude oil prices. Gold is seen as a good store of value amid inflation.
Traders said the US unit came under heavy selling pressure by investors worried that US housing market weakness will eventually dampen consumer spending and cause a slowdown in the world’s largest economy.
The banking sector has been particularly hard hit, with Citigroup, the largest US bank, announcing huge losses stemming from a meltdown in the US high-risk — or subprime — mortgage market. “The big imponderable remains the extent and valuation of subprime related losses and its impact on the economy,” said Calyon analyst Mitul Kotecha.
The dollar has also been hurt by what are seen as contrasting trends in the United States, where the Federal Reserve has been lowering interest rates, and in the euro zone, where the European Central Bank is seen as favoring tighter monetary policy.
Markets were set to pay close attention to remarks from US Federal Reserve Chairman Ben Bernanke to Congress on Thursday after fresh worries about the impact of the US mortgage and credit woes rattled stock markets last week.
In European trade on Tuesday, the euro changed hands at 1.4538 dollars, against 1.4464 dollars late Monday, at 166.62 yen (165.60), 0.6970 pounds (0.6952) and 1.6654 Swiss francs (1.6688). The dollar stood at 114.75 yen (114.49) and 1.1471 Swiss francs (1.1537).
The pound was at 2.0841 dollars (2.0799).
In London, the price of gold leapt to $818.72 per ounce at the morning fixing from $804.75 late on Monday.
