Oil rises above $128 after record surge on weak dollar

Fri 6 Jun 2008, 4:52 GMTup , up, and up

(Updates prices, adds IEA report on carbon emissions, oil demand)

By Maryelle Demongeot

SINGAPORE, June 6 (Reuters) – Oil rose above $128 on Friday, extending gains after its biggest ever one-day rise in the previous session as the U.S. dollar weakened on signals the European Central Bank may raise interest rates this year.

U.S. light crude for July delivery <CLc1> rose 67 cents a barrel to $128.46 a barrel by 0526 GMT, having settled up $5.49 at $127.79, erasing two days of sharp losses triggered by worries that high oil prices were starting to dent demand.

The contract was up $6.08 to $128.38 in after-hours trading, its largest outright gain on record and up by nearly 5 percent from Wednesday’s settlement.

London Brent crude <LCOc1> rose 54 cents to $128.08.

“A $6 jump is quite a major move. Financial flows came back. If oil continues to rise, it could test $135 or $140. The market is in a state of uncertainty after such a move,” Marc Lansonneur, Societe Generale’s head of commodities derivatives in Asia, said.

“Today will be a key day because we’ll see whether the rebound was purely technical or not. It could set the trend for next week,” he added. The dollar was steady against the euro on Friday, having fallen by more than 1 percent on Thursday after European Central Bank President Jean-Claude Trichet said a number of policymakers wanted higher interest rates and a hike was possible as soon as next month. [USD/]


The sharp reversal in the dollar put longer-term worries about weakening oil demand on the backburner, after they were rekindled earlier this week when India and Malaysia decided to raise domestic fuel prices to cope with bulging subsidy bills.

The International Energy Agency, adviser to 27 industrialised countries, issues its latest forecasts next week and has said it may lower its 2008 demand growth projection further, after having already more than halved it to 1.03 million barrels per day (bpd), from an early estimate of 2.2 million bpd in July 2007.

But some analysts say subsidy cuts in Asia will not be enough to slow oil use.

“World oil demand growth is still accounted mostly by China, the Middle East and Latin America – and through the summer, there is no reason to expect a material slowdown in demand growth in these areas,” said Harry Tchilinguirian, oil analyst at BNP Paribas in London in the bank’s June global outlook.

Ahead of a weekend meeting of G8 energy ministers plus their peers from China, India and South Korea, to try and agree on the role of consumer nations in stemming oil’s five-year price rally, the International Energy Agency warned that oil demand would rise by 70 percent if governments continued with current policies.

World governments must start a $45 trillion dollar “energy technology revolution” or risk a 130 percent surge in carbon emissions by 2050, the consumer watchdog said. [ID:nSP116202] (Editing by Michael Urquhart)


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