OIL prices regained their stunning upward momentum yesterday, soaring as crude's biggest drivers, a weak dollar and supply and demand concerns, brought buyers back in force.
The Energy Department's Energy Information Administration said oil inventories fell by 4.6 million barrels last week. Analysts surveyed by energy research firm Platts expected a much smaller decline of about 1.4 million barrels; any sign that oil supplies are falling has tended to send oil climbing.
Light, sweet crude rose US$5.07 to settle at US$136.38 a barrel on the New York Mercantile Exchange after earlier trading as high as US$138.30. Oil shot up more than US$16 over the course of last Thursday and Friday, reaching a trading record of $139.12 before pulling back this week.
The dollar's travails also sent oil prices rising. The euro bought US$1.5571 in late afternoon trading, up from US$1.5449 Tuesday. Oil prices have closely tracked dollar moves; prices rose sharply last week when the dollar fell, then retreated more than US$7 earlier this week as the dollar gained ground.
"It's been hand in hand with what the dollar's been doing," said James Cordier, president of Tampa, Florida-based trading firms Liberty Trading Group and OptionSellers.com.
Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is the primary reason oil prices have doubled over the past year.
Energy investors are betting that the European Central Bank will raise interest rates later this summer, and that the U.S. Federal Reserve will hold rates steady until this fall, Cordier said. If rates rise in Europe but remain unchanged in the US, the dollar will likely fall further against the euro.
"That's going to really fuel the (investment) funds back into the long side of crude oil," Cordier said.
Other elements of the EIA's report were considered bearish for prices. Supplies of gasoline and distillate fuels such as diesel and heating oil both rose last week, and demand for gasoline fell by 1.3 percent.
But traders chose to focus on the big drop in crude supplies and the weaker dollar, propelling prices higher. Crude inventories have fallen by 23.6 million barrels over the past four weeks.
"If crude inventories were seriously in surplus, I think that would start to override the effects of the dollar," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Winchester, Mass.
EIA chief Guy Caruso on Wednesday said crude oil prices are projected to average US$126 a barrel in 2009, four dollars higher than this year as oil supplies and demand are expected to remain tight.
Oil prices were also supported yesterday by reports that Chinese fuel imports rose more than expected over the first 5 months of the year, and Royal Dutch Shell PLC's decision to extend force majeure on some Nigerian oil shipments. The legal declaration that means the company cannot meet contractual obligations to supply some customers. The company first made the declaration following a militant attack in April.
In other Nymex trading yesterday, July gasoline futures rose 14.65 cents to settle at US$3.4658 a gallon, and July heating oil futures rose 16.24 cents to settle at US$$3.9748 a gallon.