Oil posts record US$6 gain on weak US dollar

Source: Agencies  |   2008-6-6  |     ONLINE EDITION

OIL surged US$6 to over US$128 a barrel yesterday in the largest outright gain on record as signals the European Central Bank may raise interest rates this year pushed down the US dollar.

US crude CLc1> traded up US$6.08 to US$128.38 a barrel after settling up US$5.49 earlier at 127.79, erasing two days of sharp losses that had been triggered by worries high prices were starting to eat into global demand.

London Brent crude futures LCOc1> settled US$5.44 higher at US$127.54 a barrel, before trading up to US$127.83 in post-settlement activity.

Oil prices have doubled in a year on growing Asian demand and as investors rushed into commodities as a hedge against the weak dollar and inflation, helping drive crude to a record US$135 a barrel in May.

"The dollar had a reversal and that helped to support crude," said Tom Bentz, BNP Paribas Commodity Futures Inc.

"Basically, this is still an uptrend that goes back 10 years. It is going to take more than two days of losses and talk of demand destruction to end it."

Yesterday's surge came as the greenback fell sharply against the euro on after European Central Bank President Jean-Claude Trichet signaled possible rate hikes later this year.

The comments offset a rare warning this week from the US Federal Reserve on the inflationary risk of a weak dollar, suggesting more interest rate cuts this year are not likely.

"If the ECB does raise rates it has the same impact on the dollar as the US cutting rates. So the feeling is, here we go again with the weaker dollar," said Peter Beutel, president of Cameron Hanover.

DEMAND WORRIES

Oil's losses this week came from concerns that Asian demand growth -- which has helped underpin the six-year rally -- could falter as some countries ease fuel subsidies.