Oil Trades Near Record as U.S. Dollar Falls, Commodities Surge

Feb. 27 -- Crude oil traded near a record in New York as a weakening dollar spurred investors to buy commodities priced in the U.S. currency.

Brent crude oil, the benchmark for two-thirds of world supply, rose to a record $100 a barrel in London as the dollar fell to an all-time low against the euro. New York futures were near yesterday's all-time high of $101.43. The UBS Bloomberg Constant Maturity Commodity Index increased to the highest ever, on gains for wheat, sugar, copper, cotton and cocoa.

``In U.S. dollar terms, the commodity prices should be rising, including crude oil,'' said Tetsu Emori, fund manager at Astmax Ltd. in Tokyo. ``The dollar has fallen against the Canadian dollar, the Aussie dollar and also the Brazilian real, so all the major commodity currencies are up.''

Crude oil for April delivery rose as much as 47 cents, or 0.5 percent, to $101.35 a barrel on the New York Mercantile Exchange and was trading at $101.14 at 1:20 p.m. in Singapore. Yesterday, crude futures settled at $100.88 a barrel, a gain of $1.65, or 1.7 percent. It was the highest close since trading began in 1983.

The dollar weakened to $1.5047 per euro, the lowest since the European single currency was introduced in 1999, before trading at $1.4994 as of 12:02 p.m. in Singapore. The dollar declined against all of the world's 16 biggest currencies in the past 12 months apart from the Korean won and South African rand.

``The general strength of commodity prices would instantly improve sentiment toward the oil price,'' said David Moore, commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. ``The softness in the U.S. dollar has had a valuation effect on the oil price.''

Brent, Funds

Brent crude for April settlement climbed as much as 53 cents, or 0.5 percent, to $100 a barrel on London's ICE Futures Europe exchange, the highest since trading began in 1988. It was at $99.66 at 1:22 p.m. in Singapore, Yesterday, the contract gained $1.78 to $99.47 a barrel, a record close.

Hedge-fund managers and other large speculators increased net-long positions, or bets on higher oil prices, in the week ended Feb. 19, according to a Commodity Futures Trading Commission report.

Investors have pushed prices higher in the past six years as they put money into energy because returns outpaced those of other markets.

``Crude oil is just chasing the other commodities,'' said Astmax's Emori. ``The fundamentals haven't changed so there is no reason to buy except it's being pushed up by fresh money inflows.''

OPEC To Meet

OPEC crude-oil supply will fall 200,000 barrels a day, or 0.6 percent, to 32.45 million barrels a day this month, according to preliminary estimates from PetroLogistics Ltd. The group supplied 32.65 million barrels a day in January, data from the Geneva-based tanker-tracking service showed.

Ministers from the 13 members of the Organization of Petroleum Exporting Countries are scheduled to meet in Vienna on March 5 to discuss oil quotas. OPEC produces more than 40 percent of the world's crude oil.

Chakib Khelil, Algerian oil minister and the OPEC president, said on Feb. 24 that the group might cut output at the meeting because of an expected decline in demand in the second quarter.

OPEC agreed in September to increase their output by 500,000 barrels a day starting Nov. 1.

``Bear in mind that when they increased production by a half a million barrels one reason was to make sure the Northern Hemisphere winter was adequately supplied,'' said Commonwealth Bank's Moore. ``Now that we're past the winter, the rationale for that increase is unwound effectively.''