I hope that the market doesn't ignore it for much longer; people seem to really be cutting back their spening
LONDON, Apr. 11, 2008 (Thomson Financial delivered by Newstex) -- Oil prices continued higher above $110 as renewed weakness in the dollar trumped concerns over slowing demand, with investors continuing to buy into commodities to hedge against the tumbling U.S. currency.
The International Energy (OOTC:ILGL) Agency today cut its 2008 oil product demand forecast by 310,000 barrels per day in light of fears the U.S. led economic slowdown could reduce consumption growth.
However, MF Global (NYSE:MF) analyst Ed Meir said that with the dollar remaining on the backfoot, market participants are ignoring oil's uninspiring fundamental backdrop.
'We do not see energy markets decoupling from the important dollar relationship anytime soon, and since dollar rallies are inevitably being sold into these days, we suspect that energy prices will, in turn, get bid up as a response,' he said, adding that at some point investors would have to refocus on oil's weakening demand outlook.
At 12.00 p.m., New York's West Texas Intermediate crude for May delivery was up 17 cents at $110.28 a barrel. On Wednesday, WTI hit an intraday record high of $112.21.
Brent crude for May delivery was up 50 cents at $108.70 a barrel, having yesterday posted an all time high of $109.98.
Prices have posted record highs over the previous two sessions due to a combination of dollar weakness and a surprise drop in U.S. crude and gasoline inventories reported by the Department of Energy this week.
While U.S. fuel stocks fell in the week to April 4, some analysts have argued this was more a symptom of short-term factors, such as fog in the Houston shipping channel hitting deliveries, and refiners running down stocks rather than any real strength of U.S. demand.
Saudi Arabian oil minister Ali al-Naimi on Thursday repeated the message that global supplies are comfortable and that the world's largest crude producer would be happy to put more oil on the market if there was demand from buyers.
Fears of supply shortfalls and the unwillingness of the Organisation of the Petroleum Exporting Countries to raise output quotas has been cited as one of the key reasons for oil's move above $100. Saudi Arabia is seen as the one OPEC member with enough spare production capacity to significantly influence global supply balances.
Citigroup (NYSE:C) analyst Tim Evans said that the latest comments from al-Naimi 'constitutes a supply reaction to the latest rise in prices.'
While prices have continued higher heading into the afternoon in London, end of week profit-taking following crude's strong run this week could keep a lid on any gains today, analysts said.
