Oil soared to record highs today, drawing within a hair's breadth of the $100 milestone as the US dollar plumbed new lows and the onset of cold US weather stirred anxiety over winter supplies.
US light crude for January delivery surged to a record of $99.29 a barrel early in the session, but pared those gains to stand 61 cents higher at $98.64 at 7am.
Prices shot past the previous $98.62 a barrel record, extending a rally that has lifted oil more than 40 per cent since August, as funds buy in on the weakening dollar and concerns that limited OPEC supplies will squeeze winter supplies.
London Brent crude rose 50 cents to $95.99 a barrel.
Oil has been rising inversely to the dollar over the past months amid a fever of speculative trading. The falling dollar helps protect demand for oil in non-dollar economies and could prompt OPEC producers to sustain a higher price to offset the reduced purchasing power of petrodollar revenues.
The dollar dropped to a new record low against the euro and versus a basket of currencies on Wednesday, after the U.S. Federal Reserve cut its growth outlook for next year, keeping alive hopes for another interest rates cut in December.
"The main reason behind the (rise) is the weak dollar against Asian currencies," said Rob Subbaraman, strategist at Lehman Brothers. "We expect the weak dollar to continue for a fair bit, so this is not a short-term issue."
Some commodities such as gold and platinum have also rallied on the falling dollar, although others such as copper and zinc have slumped to multi-month lows as traders fear that the US subprime mortgage crisis will crimp economic growth and demand.
Although oil prices are now near their inflation-adjusted peak from 1980, the oil market has continued to rally, buoyed in part by mounting fears that winter fuel supplies may come under strain if December is colder than usual, as forecasters expect.