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Oil prices jump back above $100 as weakening dollar attracts fresh capital to market

Oil prices jump back above $100 as weakening dollar attracts fresh capital to market

Crude prices rebounded Thursday, shooting up more than $2 a barrel to a new record as a falling dollar and the prospect of lower interest rates attracted fresh money to the oil market.
A pair of dismal economic reports Thursday drew more money into the oil market, as did Federal Reserve Chairman Ben Bernanke's comments that the economy is not immediately threatened with stagflation, a combination of economic weakness and rising inflation. The Commerce Department said gross domestic product grew at only a 0.6 percent rate in the fourth quarter, below estimates and at only a fraction of the previous quarter's growth rate, while the Labor Department said applications for unemployment benefits rose by 19,000 last week, more than expected.
Rather than viewing such news as bad for oil demand, investors chose to see it as confirmation of their beliefs that the Fed will continue cutting interest rates to try to shore up the economy. Interest rate cuts tend to weaken the dollar, and crude futures offer a hedge against a falling dollar. Also, oil futures bought and sold in dollars are more attractive to foreign investors when the greenback is falling.
"I really think that this is oil being viewed as ... a financial instrument," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Light, sweet crude for April delivery rose $2.56 to $102.20 a barrel on the New York Mercantile Exchange after rising to a new record of $102.35.
Oil prices fell $1.24 a barrel Wednesday after the Energy Department reported crude inventories rose more than expected last week.
But that reflected a rare reaction by oil investors to supply and demand fundamentals. Oil prices have been far more affected in recent months by dollar- and interest rate-driven investment decisions, analysts say.
"(Fundamentals) have no relationship to price right now," Flynn said. If prices were responding to supply and demand, fundamentals, they would be falling, he said. Several recent forecasters have lowered oil demand growth predictions for this year due to the slowing economy, and domestic oil inventories have been growing.
Oil prices have received some support in recent days from word of a technical glitch that temporarily disrupted the flow of a small amount of crude out of Nigeria. Eni SpA denied earlier reports that its Brass River oil terminal had been attacked by rebels. Turkey's recent invasion of Northern Iraq in search of Kurdish rebels has also been supportive, Flynn said, but these stories are not enough in and of themselves to explain why oil continues to trade above $100.
Many analysts believe it's just a matter of time until the fundamentals reassert themselves on the market.
"We wonder how long this particular run will last given the uncertain (economic) outlook and the fact that prices ... have divorced themselves from underlying fundamentals due to the massive infusion of fund money seeking diversification," said Edward Meir, an analyst at MF Global UK Ltd., in a research note.
Other energy futures also rose Thursday. March gasoline futures rose 1.13 cent to $2.489 a gallon on the Nymex, while March heating oil futures rose 6.22 cents to $2.8333 a gallon.
April natural gas futures jumped 35.2 cents to $9.412 per 1,000 cubic feet. The Energy Department said inventories fell by 151 billion cubic feet last week, slightly less than expected.
In London, April Brent crude rose $1.85 to $100.12 a barrel on the ICE Futures exchange.


Updated : 2021-01-19 17:44 GMT+08:00