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Oil hits new high above $114, dollar supports

Reuters: Oil hits new high above $114, dollar supports

Wed Apr 16, 2008 5:59am EDT

LONDON (Reuters) – Oil struck a new record high above $114 a barrel on Wednesday, buoyed by the weak U.S. dollar, inflows of speculative money and long-term constraints on supply.

U.S. crude was 53 cents higher at $114.32 a barrel by 5:43 a.m. EDT, just below a fresh peak of $114.41. Today’s price is more than three times the average price of 2002, when oil’s rally began.

London Brent crude for the new front-month of June was up 54 cents at $112.12.

“The funds and technicians are in the driving seat,” said Christopher Bellew, of Bache Commodities Ltd.

“There has been growth in the level of speculative money going into commodities markets.”

The weak dollar — together with strong demand — has driven oil and other commodities such as corn, gold and rice to record highs in recent months, as investors and speculators have sought a hedge against inflation.

“The dominant factor continues to be the U.S. dollar and I expect this to continue for a while,” said Gerard Rigby, an analyst at Sydney-based Fuel First Consulting.

“Whenever you get any kind of good economic news out of the (United States) at the moment, the dollar will rise and oil falls, and the other way round, you get a new oil record,” he added.

The dollar headed towards a record low versus the euro on Wednesday, hurt by caution ahead of quarterly earnings announcements by major U.S. banks and worries about the turmoil in credit markets.

CHINA DEMAND

Lifting some concerns over a supply squeeze, Mexico, a major supplier to the U.S., reopened its three main Gulf of Mexico oil ports as bad weather cleared, the government said. Only a smaller Pacific port remained shut.

But in a sign that consuming countries were still concerned about a supply shortfall, Britain’s prime minister Gordon Brown on Tuesday called on the Organization of the Petroleum Exporting Countries to boost production to counter rapidly rising prices.

OPEC, which pumps more than a third of the world’s oil, insists it is supplying enough oil.

Demand in the world’s top consumer may be losing steam. U.S. crude oil imports fell in February to the lowest level in a year.

They declined by 486,000 barrels per day (bpd), or 4.9 percent, from the month before to 9.514 million bpd, the federal Energy Information Administration said.

But China’s diesel imports rebounded in March to 490,000 tonnes, up some 49 percent from a month earlier, and remained robust in April and May, as the government extended a tax break on imported fuels.

China’s economy grew 10.6 percent in first quarter, the National Bureau of Statistics said, slower than the 11.2 percent in the fourth quarter, but stronger than forecast of 10.0 percent, underscoring the resilience of the world’s fourth largest economy despite fierce winter weather and a global credit crunch.

U.S. crude oil inventories likely rebounded last week, with an increase in imports lifting supply, following a surprise drawdown the week before, a Reuters poll of 14 analysts showed. But gasoline stocks probably fell for the fifth week running.

(Additional reporting by Annika Breidthardt in Singapore; editing by James Jukwey)

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