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Oil prices extended a record rally to more than US$89 a barrel today as weakness in the US dollar, tight fuel inventories and geopolitical concerns drew a wave of investor buying.
Oil's climb of about 13 per cent since last week has renewed concerns that soaring energy costs could hinder world economic growth and raised a red flag for Opec, which may call an early formal meeting to discuss output.
US crude oil futures gained US$2.29 to US$89.69 a barrel by 7.00am (NZT), its fifth record in as many trading days. London Brent crude rose US$1.46 to US$84.59.
"This is a market that is watching the dollar weakness very closely and as long as the dollar remains weak and stockpiles at the market's delivery point in Oklahoma remain low, this market will keep heading north," said Jim Ritterbusch, president of Ritterbusch and Associates.
The risk of Turkish military action against Kurdish rebels in northern Iraq was also underpinning oil's gains, dealers said, dimming the prospects of a recovery of Iraqi oil exports from the region and raising the spectre that other supplies from the Middle East could also be disrupted.
The factors have attracted a rush of investor cash as big-money funds seek alternatives to markets battered by the global credit crunch.
"New money is not going into bonds and is looking for other alternative investments," said Michael Metz, chief investment strategist at Oppenheimer, which manages more than US$200 billion of assets.
"(Investors) really want participation in areas that are sort of immune to the currency and interest rates problems and commodities is one of them."
The administration of US President George W. Bush has said oil prices are too high and pose a problem for low-income families. The US economy is already facing head winds from the meltdown in the subprime mortgage market.
Thursday's gains were tempered by the possibility that the Organisation of Petroleum Exporting Countries could boost crude oil output to cool the red hot market.
Nigeria's energy minister told Reuters on Wednesday that the group, which has already agreed to hike output by 500,000 barrels per day starting in November, could call another formal meeting nearly three weeks ahead of schedule.
But on Thursday an Iranian official insisted there was no need for Opec to boost production further.
"Geopolitics is the reason behind very high oil prices," said the official from Opec's No. 2 producer. "Bringing calm to the international situation would help the price."
- REUTERS
