Oil prices breach $98 as US dollar sinks to new low

SINGAPORE (AFP) — Oil prices powered past $98 in Asian trade yesterday for the first time as the greenback sank to a new low amid expectations of further declines in US energy reserves, dealers said.

Speculators were also seen driving up the market, with commodities seen as safe havens given the turmoil stemming from the US subprime mortgage crisis, they said.

At 12:45 p.m. (0445 GMT), New York’s main contract, light sweet crude for December delivery, was $1.16 higher at $97.86 a barrel from its closing record high of $96.70 in US trades on Tuesday.

The contract had earlier hit an all-time trading high of $98.03 before falling below $83.

Brent North Sea crude for December delivery crossed $94 for the first time to a new high of $94.48.

New York oil prices had surged past $97 for the first time in US trade on Tuesday.

“The dollar is falling very sharply this morning in Asia and commodities usually advance,” said Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong.

“These currencies can buy more oil for the same amount when the dollar declines,” he said.

On the oil market, he said “the trend is still up... there is nothing to change the trend.”

A weak US unit encourages demand for dollar-priced commodities because it makes them cheaper for buyers using stronger currencies.

The euro soared to a fresh record high against the ailing dollar in Asian trade Wednesday as markets speculated about the chances of another US interest rate cut, dealers said.

They said the greenback continued to be pressured by fears of more bad news from the major banks on their exposure to the US subprime loan crisis.

The euro rose to as high as $1.4665 at one point. In early afternoon trade in Tokyo it stood at $1.4641, up from a previous record high of $1.4570 reached in late New York trade on Tuesday.

The record-breaking run also came as traders bet on a further decline in US crude supplies ahead of the northern hemisphere winter, when demand for heating fuel is expected to shoot higher.

The US Department of Energy is set to release Wednesday its energy reserves report for the week ended Nov. 2. Crude supplies fell in the previous two weekly reports.

The analyst consensus forecast is for US crude reserves to have fallen by 1.7 million barrels following recent disruptions to Mexican output.

“If the inventory figures are bad again then (New York crude) could push up,” said CMC Markets trader Nas Nijjar.

“It still feels as though there will be a test of the 100-dollar level ... We’re not seeing any large sellers in this market.”

The US Energy Information Administration said Tuesday the outlook for global supply would likely remain tight, supporting high prices.

“Global oil markets will likely remain stretched, as world oil demand has continued to grow much faster than oil supply outside of the Organization of the Petroleum Exporting Countries, putting pressure on OPEC and inventories to bridge the gap,” it said.

“Additional fundamental factors contributing to price volatility include ongoing geopolitical risks, OECD inventory tightness, and worldwide refining bottlenecks. As a consequence, crude oil prices are expected to remain high and volatile.”