DAKAR/LONDON, 14 March 2008 — Saudi Arabia’s Foreign Minister Prince Saud Al-Faisal said yesterday that global oil prices had hit record levels because of “speculation” and not underlying market conditions.
“The current turbulence on the oil market is due in large part to speculation and has nothing to do with market fundamentals, which are stable,” the prince told the Organization of the Islamic Conference summit in Dakar.
The prince’s comments came as oil hit a fresh record high $110.70 per barrel yesterday, driven by investment demand to hedge against the weak US dollar and higher inflation, dealers in London said.
They said that as the dollar plumbs new depths because of fears the US economy has fallen into recession, investors are looking to commodities — especially oil and gold - as a hedge against hard times.
The United States has been pressing OPEC, which pumps 40 percent of the world’s oil and where Saudi Arabia is the dominant player, to boost output to cool prices. US President George W. Bush said Monday he was sending Vice President Dick Cheney to the Middle East next week to, among other things, press home this message.
OPEC at a meeting earlier this month declined to hike output, repeating that it believed the oil market was well supplied and that record prices reflected only speculative trade.
Meanwhile, New York’s main oil contract, light sweet crude for delivery in April, marched toward $111 per barrel to beat the previous peak of 110.20 that was set on Wednesday.
Brent North Sea crude for April hit a fresh record pinnacle at $106.80 per barrel. That topped the 106.45 touched on Wednesday. “The dollar still looks bearish, with very few investors believing in a recovery soon for the greenback and the US economy,” said Sucden analyst Andrey Kryuchenkov.
The European single currency struck a record-high $1.5625, while the dollar slid to 99.78 yen - the lowest point since November 1995 - on mounting fears of a US recession, dealers said.
The weak US currency supports dollar-priced commodities like crude oil and gold because it makes them cheaper for buyers using stronger currencies, and therefore tends to encourage demand.
On the London Bullion Market, the price of gold jumped to a record $997.10 per ounce, which came close to the symbolic $1,000 mark.
Later yesterday, New York crude stood at $110.30 per barrel, up 38 cents from the close on Wednesday. London Brent oil won 19 cents to $106.45.
“The dollar story and fears of inflation are dictating direction at the moment, with investors seeking to hedge themselves against inflation by buying into commodities and with large players looking for better returns elsewhere, away from sluggish equities and money markets,” added Kryuchenkov.
Oil prices appear to be dictated by investment demand rather than the fundamentals of supply and demand, according to Jan Lambregts, head of regional research at Rabobank in Hong Kong. “Fundamentals are well and truly out of the window when it comes to oil prices,” Lambregts said.
“A lot of money’s obviously looking for a place to park and crude oil appears to be one popular destination among commodities in general,” he said. Economists say the spike in world oil prices is also boosting inflation, including in the US, which is struggling with other economic challenges and could already be in recession.
