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Oil steady after record, dollar weighs

business Updated: Mar 12, 2008 16:18 IST

Reuters
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Oil steadied on Wednesday after hitting a record near $110 overnight, as investors grappled with a boost to the dollar after the US Federal Reserve and other central banks pumped fresh funds into the financial system.

US crude for April delivery fell 10 cents to $108.65 a barrel by 0711 GMT, coming off the record $109.72.

London Brent crude fell 10 cents to $105.15, down from an all-time high of $105.82.

The Federal Reserve and four other central banks on Tuesday teamed up to get hundreds of billions of dollars into the ailing credit markets, sending the dollar up sharply against the yen and lifting it from a record low against the euro.

Investors had rushed into commodities in recent weeks to seek a hedge against inflation and the weak dollar, driving US crude to fresh records for the past five sessions.

Some market watchers said the additional liquidity would eventually add to inflationary pressure in the United States and pull the dollar back down, which would be bullish for US dollar-denominated crude.

But prices could face pressure from a drop in demand this year, with the International Energy Agency saying world oil demand would be less than expected in 2008 due to an economic slowdown and high oil prices.

The agency added in its latest monthly report that demand remained buoyant in China and the Middle East, and only a severe world recession would send oil below $60 for a sustained period.

The US Energy Information Administration was also bearish on demand, revising downwards its previous forecast of world oil demand growth in the second quarter.

But OPEC would defend oil prices should they fall to $80 a barrel, Venezuelan energy minister Rafael Ramirez said.

In the United States, crude stocks were expected to grow by 1.7 million barrels in the week to March 7, a Reuters poll showed ahead of the weekly US inventory data due later on Wednesday.

Gasoline stocks were expected to show a small build, with distillates to fall.