Oil hits $102/barrel, gold above $963/oz

Crude oil rose to a record above $102 a barrel as a weakening dollar spurred investors to buy commodities priced in the US currency.

Futures jumped in New York and London as the dollar fell to an all-time low against the euro. The UBS Bloomberg Constant Maturity Commodity Index rose to the highest ever, on gains for gold, silver, sugar, copper and coffee. A government report later today is expected to show increase in US crude inventories last week.

"This record is purely a play on the weakness of the dollar, as investors use both crude and gold as a hedge against inflation," said Olivier Jakob, managing director of Petromatrix in Zug, Switzerland. "If the dollar keeps getting weaker, and we don't have inventory builds today, it could drive prices towards $105."

Crude oil for April delivery rose as much as $1.20, or 1.2 per cent, to $102.08 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $101.35 at 10:52 am London time.

Prices pared gains after a Persian Gulf official familiar with Saudi Arabian oil policy said prices are higher than they should be and inventory gains are likely to continue through to the second quarter.

The dollar weakened to $1.5088 a euro, the lowest since the European single currency was introduced in 1999. The dollar has declined against all of the world's 16 biggest currencies in the past 12 months apart from the Korean won and South African rand.

"Because oil has an intrinsic value, it's not exactly sensible that it becomes cheaper in other currencies so you get an adjustment upward in the US dollar value of oil," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. "The general strength of commodity prices would instantly improve sentiment toward the oil price."

Brent crude for April settlement climbed as much as $1.06 to $100.53 a barrel on London's ICE Futures Europe exchange, the highest since trading began in 1988. It traded at $99.90 at 10:52 am local time.

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

Opec crude-oil supply will fall 200,000 barrels a day, or 0.6 per cent, to 32.45 million barrels a day this month, according to preliminary estimates from PetroLogistics. 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 per cent of the world's oil.

Oil supply and demand are in balance and the price isn't in line with market fundamentals, the Persian Gulf official said, speaking on condition of anonymity.

Yellow metal at Rs 12,460

Soaring crude oil prices and falling dollar pushed gold to an all-time high of close to Rs 12,500 per 10 grams and silver to a 27-year record level of Rs 23,600 a kg on the bullion market today, enhancing its appeal as a hedge against inflation.

The rally in precious metal prices were triggered by the reports of the crude touching an unprecedented high of 102 dollars a barrel and the greenback falling to an all-time low against euro.

Gold touched Rs 12,460 per 10 grams, up Rs 325, in the billion market here, while silver rose to Rs 23,600 per kg.

The global trend, which normally sets prices in domestic bullion markets, is closely linked with the forex market and moves in the opposite direction of the US dollar.

In Singapore, gold soared above $960 an ounce today to its highest level ever, with investors pouring money into the metal.

Spot gold rose as high as $963.40 an ounce, with buying particularly from investors and speculators in Japan. It was up from $946.60/947.40 late in New York on Tuesday and has gained as much as 16 per cent this year.

Silver rallied to its loftiest level since November 1980 on investor buying as it was still cheaper than other precious metals. Palladium jumped to its best level in more than six years while platinum hovered below last week's record.

"Investors are still very concerned about the fluctuations and troubles in other markets," said Darren Heathcote of Investec Australia in Sydney.

"Let's just say $970 is not inconceivable. As I guess $1,000 is not inconceivable. There doesn't seem to be much reason to sell gold," he said.

Both the precious metals created new records as the US dollar fell to an all-time low against the euro on speculation that US Federal Reserve Chairman Ben Bernanke may indicate the central bank is prepared to keep lowering interest rates.

The US currency touched 1.5047 per euro, its lowest since 1999, the year in which the single European currency was introduced. Bernanke is scheduled to deliver his semi-annual testimony to the House Financial Services Committee in Washington today.

The precious metal is up 15 per cent in the global markets this year as a US housing slump and turmoil in credit markets led the Federal Reserve to lower interest rates when commodities were rising to record levels.

Futures open at record level
India's gold futures opened to new highs as well.

"A rally in crude oil as more funds poured into commodities on lacklusture economic data in the US also supported gold," said Shailendra Kumar, head of research at Sharekhan Commodities.

Another analyst at IL&FS Investsmart Commodities said the April contract on the Multi Commodity Exchange could aim at Rs 12,250 per 10 grams.

Open interest for April gold on MCX was at 12,266 lots, down from 12,788 on Tuesday. Volume the previous day was at 53.10 kg.