Unconventional Oil

[Tackler]

Oil jumps by over two dollars to set new record high of 107.77 usd
March 10, 2008: 12:54 PM EST

LONDON, Mar. 10, 2008 (Thomson Financial delivered by Newstex) -- Oil reversed earlier losses, jumping by over two dollars to set a fresh record high approaching 108 usd in New York as a weak dollar and unimpressive equities encouraged a fresh round of fund money into commodities.

At 4.34 pm, New York's WTI crude for April delivery was up 2.35 usd at 107.50 usd per barrel. Earlier, WTI hit an all-time high of 107.77 usd per barrel.

In London, Brent crude for April delivery was up 1.75 usd at 104.12 usd per barrel.

While US demand projections are weakening as the world's largest consumer of oil teeters on the brink of recession, crude markets have surged to a series of record highs above 100 usd in recent weeks.

Speculative buyers have poured into commodities in reaction to tumbling equity markets and US dollar weakness, with tangible assets seen as a safer bet by some financial players during the ongoing economic turmoil. A weaker dollar also makes commodities priced in the US currency cheaper for overseas investors.

However with US employment figures showing steep declines on Friday, and speculative investors keen to lock in profits, recent gains could be vulnerable.

'The disconnect between slowing US growth and a soaring commodity/energy complex has truly been quite remarkable,' said MF Global (NYSE:MF) analyst Ed Meir. 'Friday's surprisingly large drop in February non-farm payrolls was the latest evidence of a rapidly weakening US economy, as jobs retrenched by 63,000 on the month.'
While financial speculation has been seen as one of the key reasons for oil's recent gains, many investors still view the market as well enough supported by the traditional drivers of supply and demand to justify a move higher.

'Tight fundamentals remain the dominant force underpinning prices in our view, with the combination of disappointing non-OPEC production, solid non-OECD demand and defensive OPEC output policy all exerting upward pressure on prices,' said Kevin Norrish at Barclays (NYSE:BCS) Capital,
adding that Chinese crude imports increased by 14 pct year-on-year in February to hit 3.6 mln bpd.

The head of the International Energy (OOTC:ILGL) Agency, Nobuo Tanaka also told Reuters today that global oil demand is holding up despite prices above 100 usd, though he expressed concern about the long-term impact on the global economy.

The OPEC oil producer's cartel decided against upping production quotas last week, despite calls from consumer nations led by the United States for more oil in the market to help cool prices. The dollar's decline has hit producer revenues hard, leading the organisation -- which is responsible for almost 40 pct of global supplies -- to adopt a more cautious approach.

OPEC has consistently blamed the dollar's weakness combined with increased financial speculation for oil's steep gains, arguing that the market is well supplied with crude.

While US crude inventories have been rising heading into the second quarter, where demand is seasonally lower, some market watchers believe booming demand in developing nations could soon outstrip supplies. Some investors suggest recent price increases are justified, as long dated future contracts -- for delivery much further down the line -- have also pushed above 100 usd