Friday May 9, 10:51 AM
Oil hits record $124.93 as fund interest sparks rally
LONDON (Thomson Financial) - Oil rose to a series of records highs, hitting almost $125 at one point, as peak prices attracted a rush of fund investment.
Investment demand surged as oil prices have risen above many analysts' expectations while the fundamental supply/demand balance has underpinned the recent five week rally.
'The oil price appears to have some momentum of its own, with the rising oil price potentially attracting investor interest and leading to analysts, ourselves included, to revise higher their oil price forecasts,' said Commonwealth Bank of Australia (Munich: 882695 - news) analysts.
At 10:29 a.m., New York-traded West Texas Intermediate crude for June delivery was $1.12 to $124.81 a barrel, having earlier hit a record high of $124.33 a barrel.
In London, Brent crude for June delivery was up $1.14 to $123.98 a barrel.
Goldman Sachs (NYSE: GS - news) analysts recently predicted prices will rise as high as $150 to $200 a barrel within two years. That forecast has driven much of oil's gains in recent days.
Analysts at Goldman and firms such as Barclays Capital and BlackRock (NYSE: BLK - news) believe tight global supplies and growing demand from fast-growing economies in countries such as China and India are driving oil higher.
Meanwhile OPEC Secretary General Abdalla Salem El-Badri on Thursday reiterated his position that oil supplies are adequate, and that there is no need for the cartel to boost production. He said several Organization of Petroleum Exporting Countries oil projects are coming on line, but he noted that several member countries are having a hard time finding buyers for their additional supplies.
El-Badri agrees with analysts who feel speculative investment driven by the dollar's protracted decline is the real reason behind higher prices.
'With open interest still on the increase it suggests to me there remains a lot of speculative input,' said senior energy broker Rob Laughlin. 'Just beware the market looks overbought in the short term and may briefly retrace,' he warned.
The dollar, meanwhile, fell against the euro Friday, attracting investors who view commodities such as oil as a hedge against inflation. Also, a weaker dollar makes oil cheaper to investors overseas.
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