Oil scales $119 as dollar hits new low

London: Oil rose to a record high above $118 on Tuesday, boosted by a jump in oil demand last month from China, the world’s second-biggest energy consumer, and worries about supply from key producers Russia and Nigeria.US crude rose $1.90 to $119.38 a barrel by 1618 GMT after hitting an all-time peak of $119.74 earlier. London Brent crude gained $1.80 to trade at $116.23 a barrel, after rising to a record peak of $116.75.

Oil has hit a string of record highs this month, driven by booming demand from emerging markets such as China that has coincided with long-term supply constraints.

A weak US dollar has also played a part in boosting the price of dollar-denominated commodities like oil and also attracted speculative inflows from hedge funds.

The European single currency jumped to an all-time high of $1.6011 on concerns about the health of the US economy and renewed expectations of a cut in US interest rates. The dollar fell after a report showed that sales of existing US homes fell two per cent in March. The dollar was 0.15 per cent lower versus a basket of six other major currencies at 71.569.

“Every time the market does make new highs, it suggests that the upward trend is still intact and that provides a catalyst for the funds to keep buying it,” said Tony Machacek of Bache Commodities Ltd.

China’s oil demand leapt eight per cent in March from a year ago, the fastest rate in 19 months as refiners boosted imports ahead of the Olympics.

But the high cost of producing more oil plus political constraints on new supplies mean the market looks set to struggle to keep pace with growing emerging market demand.

“The news that Russia will produce less this year than the year before and Nigeria’s output may be set to fall because of lack of investment makes people realise high prices are justified,” said Bob Greer, executive vice-president at fund manager Pimco. “The five-year forward contract has gone above $100,” he said, referring to long-dated oil prices.

US reacts

Oil prices are clearly too high and not beneficial for the US economy, a top US energy official said.

The US has been resilient in the face of expensive energy, but a rally to more than $118 a barrel is an economic threat, US acting deputy secretary of Energy Jeffrey Kupfer said.

“Oil prices are clearly too high. We are not happy with the prices or the direction they’re going,” Kupfer said. He said fundamentals of supply and demand were a major factor. “Fundamentals are tight right now.”

Kupfer dismissed producers’ concerns that high prices will erode demand and increase use of alternative fuels, saying fossil fuels would continue to meet majority of energy needs.