Oil prices soared to new highs above US$111 a barrel in Asian trading yesterday as the US currency slumped to a fresh low against the euro, sparking a rush of funds into commodities, dealers said.
In afternoon trading New York's main contract, light sweet crude for delivery next month, was trading at US$111.06 a barrel after soaring earlier to a fresh all-time high of US$111.42.
Brent North Sea crude for May delivery was up US$0.83 to US$107.03.
The April contract expired on Friday at US$107.54.
The latest record-setting mark came as the euro rose to a lifetime peak of US$1.5905 while the US currency fell to as low as ?95.75, a bottom not seen since September 1995.
The dollar's continued plunge has triggered a flood of funds into commodities such as oil which are seen as safe havens amid rising concerns over the US economy and financial turmoil from a global credit squeeze.
"It really seems to be a case where the continued dollar weakness appears to be the key driver for oil," said Gerard Burg, a minerals and energy economist with National Australia Bank.
"The kind of evidence we are seeing at the moment in the US equity markets is counter-cyclical to the commodity markets," he said.
In the near-term, dealers said, oil prices are likely to trend higher with no relief seen for the US currency as investors worry about the US financial system following the woes of investment bank Bear Stearns.
"We can continue to expect strong prices for oil and commodities like gold in the near term," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.
An emergency rate cut by the US Federal Reserve, made in a rare Sunday announcement, only added to the sense of crisis after the near-collapse of Bear Stearns, analysts said.
The US central bank said on Sunday it was cutting its primary credit rate by a quarter-point to 3.25 percent.
The rate is offered at the Fed's discount window for institutions "in sound condition."
The ailing greenback has helped drive up oil prices because crude is priced in dollars and becomes more affordable for purchasers holding stronger currencies.
Investors view oil futures as a hedge against inflation and the weak dollar.
Societe Generale said in a report yesterday that the dollar was "under sustained pressure."
Oil prices have soared by 90 percent over the past year, driven by tight supplies, political concerns in key producer nations and fierce demand for crude from China and India.
Prices have gained about 11 percent in value since the start the year, accelerating after the OPEC oil cartel decided earlier this month that it would not increase output.
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