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Oil prices steady above record $108

business Updated: Mar 11, 2008 11:24 IST

Oil shot to a record over $108 a barrel on Monday, extending a rally led by investors seeking a hedge against the tumbling dollar and inflation.

US crude settled up $2.75 at $107.90 a barrel, off a record $108.21 hit earlier in the session. London Brent crude jumped $1.78 to settle at $104.16 a barrel.

Fears of a US recession following the biggest US job losses in five years and strains in the credit market have sunk the dollar and raised expectations the Federal Reserve could cut interest rates again to prop up the economy.

Speculators have rushed into commodities to hedge against the weaker dollar as well as prospects that further Fed rate cuts could fuel inflation, helping to lift oil to the average over $95 so far this year despite signs the faltering US economy is crimping energy demand.

"It's the same thing that has been going on, it's a shark-like feeding frenzy on commodities. A lot of people feel the latest numbers on employment were bearish on the economy," said Peter Beutel, president of Cameron Hanover.

"The bottom line is people believe that as long as we see bearish numbers it will lead to another Fed cut."

The dollar tumbled against the yen on Monday as fears of a US recession hit stock prices.

A fall in US crude oil inventories reported in government data released last week and OPEC's decision on Wednesday to hold supplies steady have also boosted prices.

OPEC President Chakib Khelil was quoted on Monday as saying speculation and political tension would keep prices at triple digits through the year, and some analysts are adjusting their forecasts higher.

"We certainly do see the balance for the rest of the year averaging $100," said Paul Horsnell of Barclay's Capital.

"But we are not going to say that it's going to stay above $100 for every single minute of every trading day for the rest of the year."

Cartel officials insist that speculators are driving up oil prices and that supply and demand fundamentals do not support current levels.

Khelil said prices could retreat in 2009 with a recovery of the US dollar following the election of a new US president and as fundamentals reassert themselves.

OPEC will next meet in September, although ministers could confer informally at a conference between consumers and producers in Rome on April 20-22.

(Additional reporting by Daniel Fineren in London and Fayen Wong in Sydney)