Oil rises to intraday record above $112

By GEORGE JAHN, Associated Press Writer
04/15/08

Oil prices rose to an intraday trading record above $112 a barrel Tuesday as the U.S. dollar fell against the euro and crude oil shipments along one U.S. pipeline were said to be operating below capacity.

Light, sweet crude for May delivery on the New York Mercantile Exchange rose to an intraday record of $112.80 a barrel in electronic trading by early afternoon in Europe, well above the previous trading high of $112.21 set last week.

Crude's rally this week started with a decline in the dollar against the euro on Monday, analysts said. Crude oil's recent run above $100 a barrel has been largely attributed to a steadily depreciating U.S. currency because a weakening dollar prompts investors to seek a safe haven in hard commodities such as oil and gold.

"We've seen another swing down in the U.S. dollar so I think we saw short term traders go back into oil as a hedge against the falling dollar," said Mark Pervan, senior commodity strategist at the ANZ Bank in Melbourne, Australia.

Stephen Schork, in his Schork Report, described the rush into oil on the falling dollar as an automatic reflex.

"Traders on the Numex saw the dollar take another tumble, so they did what they have been conditioned to do when the dollar falls, i.e. they bought crude oil," he wrote.

The dollar fell further against the 15-nation euro on Tuesday. The euro rose to $1.5832 in morning European trading, up from $1.5808 in New York late Monday. The euro set its latest all-time high of $1.5912 last Thursday.

Monday's news from Wachovia supported oil prices by making the U.S. dollar less attractive, said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Wachovia, the fourth largest bank in the U.S., reported a hefty first-quarter loss and cut its dividend, and said it was forced to seek a $7 billion cash injection to make up for a poorly timed expansion of its mortgage business.

"This news highlights the strains in the banking sector and credit markets and that has led to more dollar selling, and so that tends to drive investors into oil and other commodities," Shum said.

He said the news from Wachovia as well as disappointing first-quarter results from General Electric Co. on Friday overshadowed concerns raised by the Group of Seven industrialized nations about the dollar's fall. The G-7 remarks were seen as a warning by some analysts that the group may be contemplating an intervention that could lessen crude's attraction as an inflation hedge and send it lower.

Crude was also supported by news of disruptions to crude supplies, though analysts said the interruptions were minor.

"They only look like temporary shut downs but ... the combination of that and the fact that the dollar was off again was the key," Pervan said.

The Capline pipeline — the Royal Dutch Shell PLC conduit that carries 1.2 million barrels of crude each day from the U.S. Gulf Coast to the Midwest — was closed on the weekend, and has since resumed operations at a slightly reduced capacity.

In Nigeria, Italian energy giant ENI reported a 5,000 barrel per day reduction in production at one of its facilities.

In other Nymex trading, heating oil futures added over a penny to sell for $3.2144 a gallon while gasoline prices were flat at $2.8196 a gallon. Natural gas futures gained more than 6 cents to $10.116 per 1,000 cubic feet.

In London, Brent crude futures rose 49 cents to $110.33 a barrel on the ICE Futures exchange.

http://news.yahoo.com/s/ap/20080415/ap_on_bi_ge/oil_prices


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