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Bloomberg: Crude Oil Rises to Record $111 in New York on Weak U.S. Dollar

By Mark Shenk

March 13 (Bloomberg) — Crude oil rose to a record $111 a barrel in New York as the sinking value of the dollar attracted investors to commodity markets.

The dollar dropped below 100 yen earlier today for the first time since 1995 and declined to a record low against the euro. Investors looking for higher returns have flocked to commodities. Oil surged 90 percent over the past year as the Standard & Poor’s 500 Index dropped 4.4 percent.

“Energy trading continues to be dollar dominated,” said John Kilduff, senior vice president of energy at MF Global Ltd. in New York. “The reverberations from the credit markets and U.S. economic policies are creating an inflation wave in hard assets and traditional inflation havens.”

Crude oil for April delivery rose 41 cents, or 0.4 percent, to settle at a record $110.33 a barrel at 2:49 p.m. on the New York Mercantile Exchange. Futures began trading in 1983.

Brent crude for April settlement rose $1.27, or 1.2 percent, to $107.54 a barrel on London’s ICE Futures Europe exchange, a record close. Futures reached an intraday record of $107.88 a barrel today.

Energy and metals prices have surged over the past year as the U.S. currency plunged, prompting investors to seek a hedge against inflation. The euro rose over the past year as the Federal Reserve cut rates amid the worst housing slump in a quarter of a century, and $190 billion of U.S. subprime-mortgage- related losses and markdowns by financial institutions.

“Unless and until the dollar policy changes, energy prices will continue to soar,” Kilduff said.

Gold at $1,000

Gold traded above $1,000 an ounce for the first time in New York today on the sliding dollar. Silver, platinum and palladium also advanced.

The U.S. currency fell against a basket of six major trading partners to the lowest since the index began in 1973. The Dollar Index traded on ICE Futures in New York declined as low as 71.795

“There’s nothing fundamental in the market, people are reacting to the dollar,” said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. “We aren’t only seeing the arrival of pension fund and insurance money. There’s been a wave of sloppy money coming from small investors trying to take part in the commodity rally.”

The California Public Employees’ Retirement System, the largest U.S. pension fund, may increase its commodity investments 16-fold to $7.2 billion through 2010 as raw-materials prices rise to records. Calpers, which has about $240 billion in assets, agreed to the reallocation at a Feb. 19 board meeting, spokesman Clark McKinley said on Feb. 28.

Natural Gas

Prices climbed to the day’s high after an Energy Department report showed that supplies of natural gas, a competing fuel, fell. Inventories dropped 86 billion cubic feet to 1.398 trillion cubic feet last week, the report showed.

Natural gas for April delivery rose 21.9 cents, or 2.2 percent, to settle at $10.230 per million British thermal units in New York. Futures touched $10.254, the highest since January 2006. Prices are up 48 percent from a year ago.

U.S. crude-oil stockpiles climbed 6.18 million barrels to 311.6 million in the week ended March 7, the Energy Department said yesterday. Gasoline inventories rose 1.69 million barrels to 236 million, the highest since 1993.

“We are waiting for the fundamentals of the physical market to pop this financial bubble; the only question is when it will occur,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Gasoline supplies are at a 15-year high, which can’t be ignored forever.”

To contact the reporter on this story: Mark Shenk in New York at [email protected].

Last Updated: March 13, 2008 15:24 EDT
 

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