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Oil Above $110, Close to Record

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[March 13, 2008]  SINGAPORE (AP) -- Oil prices on Thursday were near an overnight record above $110 a barrel as investors looked to commodities as a safe haven against the U.S. dollar's slide.

In Asia, the dollar sank to a 12-year low against the yen and hit a record low against the euro amid concerns about the flagging U.S. economy. Many analysts believe the greenback's decline is the reason crude futures have surged to new records in 11 of the past 12 sessions, despite the fact that crude supplies have risen 10.2 percent since early January.

Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak.

"Oil and other commodities have an intrinsic value so that to the extent that the U.S. dollar depreciates, (oil) becomes relatively cheaper in terms of other currencies, such as the euro," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "So you get an adjustment to compensate for that effect."

Light, sweet crude for April delivery rose 21 cents to $110.13 a barrel in electronic trading on the New York Mercantile Exchange by late afternoon in Singapore, holding just below Wednesday's record trading high of $110.20 a barrel.

Oil prices initially fell Wednesday in New York trading after the U.S. Energy Department's Energy Information Administration, or EIA, said crude supplies rose 6.2 million barrels last week, more than three times the 1.6 million barrels forecast by analysts surveyed by Dow Jones Newswires. But buyers quickly returned to the market.

"We did see oil prices take a bit of a hit when the EIA data was released ... but obviously that dent was only temporary," Moore said. "Subsequently, oil prices went up higher again, and I think the weakness of the U.S. dollar was a key part of that."

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The EIA also reported that gasoline supplies rose 1.7 million barrels last week, well above the expected 300,000 barrel increase, and distillate supplies dropped 1.2 million barrels, less than the expected 2 million barrel decline.

It was the eighth increase in crude supplies in nine weeks, putting oil inventories back on a growth track after a one-week decline. Meanwhile, forecasters including the Energy Department, the International Energy Agency and OPEC have consistently reduced their demand growth predictions for this year.

Wednesday's EIA report offered more evidence demand is falling: Gasoline consumption fell 0.7 percent last week compared to the same week last year. Normally, gasoline consumption grows about 1.5 percent year-over-year, just to keep pace with population growth.

Many analysts argue that current oil prices can't be justified by the market's underlying supply and demand fundamentals. Yet evidence of weak demand amid growing supplies has not stopped oil prices from rising in the past, particularly when the dollar is falling.

"Some investors are apparently viewing oil and other commodities as providing something of a hedge against U.S. dollar weakness and possibly inflation concerns as well," Moore said.

In other Nymex trading, heating oil futures lost 0.19 cent to $3.0225 a gallon while gasoline prices were down 0.31 cent to $2.7255 a gallon. Natural gas futures added 6.2 cents to $10.073 per 1,000 cubic feet.

In London, Brent crude futures fell 18 cents to $106.09 a barrel on the ICE Futures exchange.

[Associated Press; By GILLIAN WONG]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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