May 5, 2008 / 12:19 PM / in 10 years

Oil jumps $4 to record over $120 on weak dollar

NEW YORK (Reuters) - Oil jumped more than $4 to a record high over $120 a barrel on Monday on the weaker U.S. dollar and supply concerns from OPEC members Nigeria and Iran.

<p>A customer pumps gas at a Mobil gas station in Medford, Massachusetts, April 30, 2008. REUTERS/Brian Snyder</p>

U.S. crude settled up $3.65 at $119.97 after surging as high as $120.36. London Brent crude rose $3.43 to $117.99 in light trade due to a bank holiday in Britain, after hitting $118.58 a barrel.

“People are piling back up on crude oil due to the weakness of the dollar and production issues in Nigeria,” said Phil Flynn, analyst at Alaron Trading in Chicago. “But it also looks like momentum play after Friday’s positive reaction to the unemployment report.”

U.S. government data released Friday that showed U.S. payrolls fell by 20,000 jobs in March, a quarter of the losses expected, helping to counter concerns that the weaker U.S. economy could drag down oil demand.

The dollar fell broadly on Monday, however, as forex investors decided the world’s biggest economy was still struggling. A Monday report from the Institute for Supply Management showed the U.S. service sector grew unexpectedly in April.

Further support for oil came from Iran’s announcement on Monday it would not consider any incentives offered by world powers that would constrain its right to nuclear technology.

The comments come just three days after major powers said they would make a new offer to convince the Islamic republic to halt its nuclear plans. The West believes Tehran wants to build nuclear weapons.

Iran’s standoff with the West over its nuclear program added geopolitical concerns and fundamental tightness last year that sent crude to new highs.

Crude has kept surging since then, extending a six-year rally that has more than quintupled prices, on a wave of investment by speculators seeking to hedge against inflation and the weak dollar.

U.S. President George W. Bush, who has called upon oil cartel OPEC to increase output to help bring down prices, is expected to talk with officials from Saudi Arabia about the effects of high fuel prices on the U.S. economy on his trip to the world’s top exporter later this month.

OPEC officials have rejected calls from consumer nations to ramp up production. They blame speculators for surging oil prices.

Additional supply worries came from Nigeria, where Royal Dutch Shell was forced to shut more of its production after militants on Saturday attacked a flowstation in the oil-rich Niger Delta.

Renewed clashes between Turkey and Kurdish rebels in northern Iraq also lent support to oil prices.

The Turkish army said on Saturday it killed more than 150 Kurdish PKK fighters in air strikes in northern Iraq last week, but the rebel group denied this and security forces in the region also expressed skepticism.

A Reuters poll of analysts forecast a weekly U.S. government report on inventories due out on Wednesday will show a 1.8-million-barrel build in crude stocks, a 1.1-million-barrel increase in distillate inventories, and a 100,000-barrel fall in gasoline stocks.

Additional reporting by Gene Ramos, Robert Campbell and Richard Valdmanis in New York, Janet McGurty in London and Fayen Wong in Perth; Editing by David Gregorio

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