US$110: Oil prices hit new high, adding to inflation fears

By Nicholas Fang, ST

Barely two months after breaking the landmark US$100-a-barrel level, crude oil hit another milestone late on Wednesday when it briefly surged past US$110 a barrel.

And while it hovered just under US$110 yesterday, economists in Singapore said higher fuel prices could add to existing fears of rising inflation and slower economic growth this year.

New York oil prices set an all-time trading high of US$110.20 per barrel on Wednesday before registering the record closing price of US$109.92.

Market watchers said soaring prices have been fuelled by strong investor demand for commodities to hedge against rising inflation and the ailing United States dollar.

Crude oil, which is priced in the American currency, has become more affordable for buyers holding stronger currencies who then up their demand and purchases.

United Overseas Bank economist Ho Woei Chen said higher oil prices are definitely one of the contributing factors to slower growth. ‘But with the economy slowing down, we expect the demand for oil to ease at some point.’

Oil hits new peak, rises above US$103

Oil prices hit a new all-time high above US$103 a barrel yesterday – smashing the inflation-adjusted peak of US$102.53 reached in 1980 after the Iranian revolution – before easing towards US$102.

The rally was fuelled by investment funds chasing commodities, as the US dollar plummeted and worries mounted about supply disruptions.

United States crude oil was 40 US cents down at US$102.19 a barrel in London trading, after it had hit a new record peak of US$103.05 earlier in Asia.

‘Oil prices have risen more than 15 per cent in the last three weeks, so some profit-taking could lead to lower prices,’ said Mr Frank Schallenberger, an analyst at Landesbank Baden-Wurttemberg in Germany.

The latest spike came as Ecuador shut a key oil export pipeline after a landslide and a fire hit a gas terminal in England.

Some analysts say the plunging US dollar and rising inflation concerns have triggered a sharp flow of fund money into commodities.

Oil’s relentless rally comes ahead of a meeting of the Organisation of Petroleum Exporting Countries in Vienna next week. Most members say they are unlikely to raise production at the meeting, given hefty global crude and fuel stocks ahead of the second quarter.