Oil Rises Above $102 As Weak Dollar Boosts Commodities Prices

Oil Rises Above $102 as Weak Dollar Boosts Commodities Prices

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By Grant Smith

Feb. 27 (Bloomberg) -- Crude oil rose above $102 a barrel, the highest ever, and gold advanced to a record as a weakening dollar spurred investors to buy commodities as a hedge against inflation.

Futures jumped in New York and London as the dollar fell to $1.50 per euro for the first time. The UBS Bloomberg Constant Maturity Commodity Index rose to the highest ever, on gains for gold, silver, sugar, copper and coffee. A government report later today is expected to show U.S. crude inventories rose last week for a seventh straight time.

"This record is purely a play on the weakness of the dollar, as investors use both crude and gold as a hedge against inflation,'' said Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland. "If the dollar keeps getting weaker, and we don't have inventory builds today, it could drive prices towards $105.''

Crude oil for April delivery rose as much as $1.20, or 1.2 percent, to $102.08 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $101.13 at 12:28 p.m. London time.

Prices pared gains after a Persian Gulf official familiar with Saudi Arabian oil policy said prices are higher than they should be and inventory gains are likely to continue through to the second quarter.

Gold, up 15 percent this year, rose to a record $964.99 an ounce today in London, while silver advanced to a 27-year high. Among agricultural commodities, Robusta coffee climbed 2.1 percent on the Liffe exchange.

Dollar's Slide
The dollar weakened to $1.5088 a euro, the lowest since the European single currency was introduced in 1999. The dollar has declined against all of the world's 16 biggest currencies in the past 12 months apart from the Korean won and South African rand.

"Because oil has an intrinsic value, it's not exactly sensible that it becomes cheaper in other currencies so you get an adjustment upward in the U.S. dollar value of oil,'' said David Moore, commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. "The general strength of commodity prices would instantly improve sentiment toward the oil price.''

Brent crude for April settlement climbed as much as $1.06 to $100.53 a barrel on London's ICE Futures Europe exchange, the highest since trading began in 1988. It traded at $99.74 at 12:29 p.m. local time.

U.S. crude stockpiles probably advanced a seventh week, by 2.7 million barrels in the week ended Feb. 22 from 305.3 million barrels, according to a Bloomberg survey before today's Energy Department report. Refiners typically schedule repairs and upgrades this time of year, as U.S. heating-fuel use slows and before warmer weather spurs an increase in gasoline consumption.

OPEC Outlook
Oil supply and demand are in balance, and a gradual rise in oil stockpiles will continue through the second quarter, the Persian Gulf official said, speaking on condition of anonymity.

Ministers from the 13 members of the Organization of Petroleum Exporting Countries are scheduled to meet in Vienna on March 5 to discuss oil quotas. OPEC produces more than 40 percent of the world's oil.

"Fundamentals are going to have to become sufficiently bearish to outweigh the weakness in the U.S. dollar, or else we're going to have to see some revived recessionary concerns that suggest demand is going to subside,'' said James Ritterbusch, president of Illinois-based consultant Ritterbusch & Associates.

OPEC crude-oil supply will fall 200,000 barrels a day, or 0.6 percent, to 32.45 million barrels a day this month, according to preliminary estimates from PetroLogistics Ltd. The group supplied 32.65 million barrels a day in January, data from the Geneva-based tanker-tracking service showed.

Hedge-fund managers and other large speculators increased net-long positions, or bets on higher oil prices, in the week ended Feb. 19, according to a Commodity Futures Trading Commission report issued at the end of last week.