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Oil scales new two year high as commods prosper

Oil resumed gains to hit a fresh two year high above $87 on Tuesday, erasing earlier losses, as commodities rallied across the board.

business Updated: Nov 09, 2010 18:16 IST

Oil resumed gains to hit a fresh two year high above $87 on Tuesday, erasing earlier losses, as commodities rallied across the board.

US crude oil futures hit $87.67 a barrel, the highest since October 2008. ICE Brent was trading 30 cents higher at $88.76.

Oil reversed course following the release of the IEA's long-term energy outlook, in which the Paris-based agency said oil prices might exceed $100 a barrel in 2015 and $200 in 2035.

Analysts said the $100 mark provided a clear price target for investors, but return on investments might not be dramatic.

"That $100 per barrel is four-five years away. It is not much support to oil prices," Olivier Jakob with Petromatrix said.

Analysts said gains might be limited by a stronger dollar against the euro due to renewed concern about debt in Europe and an expected rise in US oil inventories.

"The top end of prices will be weighed by renewed concerns over sovereign debts in Europe, while crude prices would move with a solid floor due to money inflows into risky assets following the further easing (in the United States)," analysts with Mizuho Corporate Bank in Tokyo said in a research note.

"Ahead of the (US government) oil inventory data tomorrow narrow range price movements are likely today."

Wider commodities markets rallied due to risk appetite on the back of the US Federal Reserve's decision last week to inject $600 billion to spur a flagging recovery, referred as the QE2.

Gold added to a record breaking run, hitting a new high above $1,400 an ounce as investors sought safe havens in the face of uncertainties including euro zone debt worries and this week's G20 leadership summit in Seoul.

INVENTORIES

US crude inventories probably increased by 1.4 million barrels in the week to Nov. 5 as imports rebounded, a Reuters poll of analysts showed on Monday.

The American Petroleum Institute will issue its oil stocks report on Tuesday at 2130 GMT, followed by the US Energy Information Administration's (EIA) government data on Wednesday.

The analysts in the poll forecast a drawdown of 1.8 million barrels for middle distillate inventories, which includes heating oil and diesel, down for the seventh consecutive week, while gasoline stocks fell 1 million barrels.

The US EIA will release its outlook for 2011 oil consumption in the United States and the world later on Tuesday.

Analysts expected the EIA to increase its forecast for next year.