Oil yesterday leapt more than $3 a barrel to a new record high of $97 as a weak US dollar and tight fuel stocks prompted buying by investors.
Investors, wary of global equity markets where the full impact of the credit crunch has yet to become clear, see oil as a good bet, especially given tight fuel supplies in the run up to the northern hemisphere winter.
Fears of tight supplies were driven home as the US Energy Information Administration said world oil demand growth in the fourth quarter of 2007 and the first quarter of 2008 will be 40,000 barrels per day higher than its prior forecast. US crude rose $2.86 to $96.85 a barrel, putting it on course to test $100. London Brent crude rose $2.67 to $93.16 a barrel, off highs of $93.38.
The prospect of more fallout from the US sub-prime crisis sent oil tumbling $2 a barrel on Monday as investors worried that slowing economic growth in the United States would
curb demand for fuel. Those concerns persisted yesterday, pushing the dollar to record lows against a basket of major currencies. But stock markets recovered and gold hit a 28-year peak.
"We seem to be seeing a tug of war between people taking profits and those coming into buy into dips, and they are effectively saying we can go past $100," said Mike Wittner at Societe Generale.
Oil's surge from below $70 in mid-August has been stoked by a weak dollar and speculative inflows into oil and other commodities - and extended by evidence of dwindling supply.
US crude oil stocks were expected to have fallen a further 1.6 million barrels last week due to disruptions to short-haul Mexican shipments, a preliminary Reuters poll found.
Distillate inventories were seen falling by 700,000 barrels and petrol stocks by 100,000 barrels.
Inventories in Japan, the world's third-largest consumer, are also running below comfort levels.
"The temperatures in December in the north are expected to be below normal, so that is also a concern for us with the low inventories," said Ken Hasegawa of Fimat, Japan.
US Energy Secretary Sam Bodman said current prices were a "terrible problem" for consumers, adding he hoped producer group OPEC would ramp up output to ease prices. Many Opec officials have rejected that call.
Venezuelan Oil Minister Rafael Ramirez echoed other officials, saying high prices were due to speculation and geopolitical tensions, not a shortfall in supplies.
