Oil Climbs Above $126 to Record as Dollar Weakens Against Euro

Crude oil rose above $126 a barrel in New York to a record as the dollar weakened against the euro, prompting investors to buy commodities as a hedge against the currency's decline.

For a fifth day oil climbed to all-time highs as the euro strengthened on signs the European Central Bank will keep rates at a six-year high to cut inflation. Nigerian output fell to the lowest this decade in April because of a strike and attacks on oil installations.

``Oil is a safe haven because of the weak dollar and how badly the financial sector has been doing,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``There are also geopolitical concerns about places like Nigeria and Venezuela that are propping prices up.''

Crude oil for June delivery rose $2.27, or 1.8 percent, to a record closing price of $125.96 a barrel at 2:55 p.m. on the New York Mercantile Exchange. The contract surged to $126.27 today, the highest since futures began trading in 1983. Prices are up 8.3 percent this week, the biggest weekly gain in more than a year. Futures have more than doubled in the past year.

Brent crude oil for June settlement climbed $2.56, or 2.1 percent, to close at a record $125.40 a barrel on London's ICE Futures Europe exchange. The contract touched $125.90 today, the highest since trading began in 1988.

Oil at $200 is ``possible if we have a continuing devaluation of the dollar with respect to other currencies,'' OPEC President Chakib Khelil said yesterday at a press conference in Washington.

The dollar fell 9.6 percent since Sept. 18, when the Federal Reserve began cutting rates to ease financial-market strains and stave off a recession. The U.S. central bank cut rates seven times while the ECB has left rates unchanged. The dollar fell 0.6 percent to $1.5483 per euro at 3:27 p.m. in New York.

``Fed policy is accommodating the rise in energy prices,'' said Bill O'Grady, director of fundamental futures research at Wachovia Securities in St. Louis. ``The Fed and federal government are putting more liquidity in people's pockets, which is being spent on expensive oil.''

Oil remains lower on firm dollar

Oil remained lower in early trade as the dollar remained firm against the euro, and as supply fears in Nigeria and the North Sea, which last week helped send crude to a new record high near $120 a barrel, receded.

Oil slid amid a broad-based commodities sell-off yesterday as the dollar strengthened against the euro, supported by hopes that the worst effects of the credit crunch may already have been felt.

A firmer greenback makes dollar-priced commodities such as crude oil more expensive for holders of other currencies.

'As the dollar soared yesterday, hitting six-week highs against the euro, commodity prices plunged across the board, with crude, base metals, precious metals, and agriculturals, all losing ground,' said MF Global analyst Ed Meir.

'The dollar should continue to set the tone over the next few days, as commodity markets will no doubt be waiting to see whether this latest rebound has some legs to it, or if it is just another flash in the pan,' he added.

At 9:15 a.m., New York-traded West Texas Intermediate crude for June delivery was down 10 cents at $112.42 per barrel. Yesterday is hit $110.46, the lowest price since April 14.