Crude oil hits $112.20 after drop in US stocks

Crude oil gave up gains after trading close to a record high as the dollar's slide against the euro encouraged investors to buy commodities.

Intra-day, the contract rose as much as 1.2 per cent, or $1.33, to $112.20, 1 cent short of the highest intraday peak since Nymex futures trading began in 1983.

The dollar's decline made oil cheaper for buyers in other currencies. An unexpected 3.1 million-barrel drop in crude stockpiles reported by the Energy Department yesterday sent prices up as much as 3.4 per cent to an all-time high of $112.21 a barrel.

"The fall in inventories was a surprise for the market, which drove prices up,'' said Barbara Lambrecht, an analyst at Commerzbank AG in Frankfurt. "The weak dollar is supporting prices and institutional investors are still interested.''

Crude oil for May delivery was down 0.3 per cent at $110.58 at 1:49 pm London time in after-hours trading on the New York Mercantile Exchange.

Brent crude for May settlement traded down 0.3 per cent at $108.13 in London on London's ICE Futures Europe exchange. It earlier rose as much as 1.4 per cent, or $1.51, to $109.98. Yesterday, it climbed $2.13, or 2 per cent, to settle at a record $108.47 a barrel.

``There is a risk premium being priced into the market with regard to the future availability of crude oil,'' Stephen Schork, president of the Schork Group Inc., said in an interview with Bloomberg Television. ``This is a market that's being driven by speculation as much as it is by the fundamentals.''

The dollar fell to an all-time low of $1.5913 to the euro in London, compared with $1.5831 yesterday in New York. The tumbling dollar has drawn investors to the crude market as commodities become cheaper for buyers with other currencies.

Crude futures rose $2.37 to settle at $110.87 a barrel yesterday, a record close. Prices are being supported by the weak dollar, combined with a lack of spare production capacity and geopolitical risks, International Energy Agency Executive Director Nobuo Tanaka said on Thursday.

Gasoline stockpiles fall
Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell last week. Gasoline inventories dropped 3.44 million barrels to 221.3 million, yesterday's report showed. A 3 million-barrel decline was expected.

Crude oil and gasoline stockpiles in the US remain above a five-year average for the period, according to the report. Crude inventories were 316 million barrels, 0.1 per cent above the average. Gasoline stockpiles were 7.9 per cent higher.

Refineries operated at 83 per cent of capacity, down from 88.4 per cent a year earlier, the Energy Department report showed. Refiners operated at 82.2 per cent in the week ended March 21, the lowest since October 2005.