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Oil eases from record high, dollar rallies

Oil eases from record high, dollar rallies

LONDON, March 11 (Reuters) – Oil fell from record highs near $110 a barrel on Tuesday as the U.S. dollar rallied after the Federal Reserve and other central banks injected liquidity into strained financial1 markets.
U.S. light crude for April delivery was down 75 cents at $107.15 a barrel by 1400 GMT, after it touched a record $109.72 a barrel — the fifth straight day of new records.
London Brent crude was down 32 cents at $103.84, off its record high of $105.82.
“Oil is definitely reacting to the reversal of the dollar,” said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc. “On coordinated central bank liquidity action.”
The U.S. Federal Reserve announced a new effort with other central banks to add up to $200 billion to strained credit markets, boosting stocks and helping the dollar rally.
The Fed said it was expanding a securities lending programme and will accept a broader base of securities as collateral, including many mortgage bonds whose value has declined as the housing bubble burst.
The dollar rose nearly a full yen, and trimmed its losses against the euro.
The euro rallied to an all-time high against the struggling U.S. dollar earlier on Tuesday, anticipating more interest cuts by the Federal Reserve to boost the flagging economy in the United States, the world’s top energy consumer.

AN ERA OF HIGHER PRICES
Oil prices had dipped slightly after the International Energy Agency said world oil demand would be less than expected this year because of slower economic growth in industrialised countries and record prices.
But the agency also said only a severe recession would push oil back below $60 a barrel.
“We are in an era of higher oil prices and so if we look at $100 oil we have to do so with an understanding that prices are unlikely to return to levels seen in the early part of the decade,” said the IEA, which advises 27 industrialised countries..
Oil has set a string of record highs as a bullish long-term supply outlook for oil and other commodities has continued to suck in investment flows looking for alternatives to equities and bonds that are overshadowed by the credit market crises and fears of a U.S. slowdown.
“Looking at the big picture, we believe that the recent price surges in the commodity sector have been for the most part triggered by large capital inflows from institutional investors, hedge funds above all,” said fund manager Tiberius Asset Management in a research note.
Goldman Sachs warned oil was at risk from substantial fund liquidation due to cyclical fundamental weaknesses in the next few months, but the investment bank remains constructive on energy for the long-term.
“We believe that the combination of low economic growth in the United States and high oil price inflation will have its strongest impact on demand in the first half of the year,” the investment bank said in a research note.
The latest update on fuel supplies in the United States, due on Wednesday, is forecast to show a 1.9 million barrel rise in crude oil inventories last week, according to a preliminary Reuters poll.

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