The Telegraph
Since 1st March, 1999
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Mood swings in twin flare-ups
- Oil rallies to record high of $92

London, Oct. 26 (Agencies): World oil prices surged to historic highs today, breaching $92 for the first time in New York on rising tension in crude-rich Iran and a falling dollar.

“Now that oil is in the 90s, it is much easier to reach $100. Anything can happen in this market,” Astmax fund manager Tetsu Emori said.

New York’s main futures contract, light sweet crude for delivery in December, soared to a record high of $92.22 per barrel. It later stood at $91.10, a rise of 64 cents from Thursday's close.

In London, Brent North Sea crude for December delivery touched an all-time high of $89.30 per barrel on Friday. It later stood at $88.35, up 87 cents. Crude futures have rocketed by about $10 in only a month and by $30, or 50 percent, in a year.

Institutional money has been flooding into oil and other commodities since the US Federal Reserve cut interest rates in August.

“It’s more or less nobody wants to be short in this market,” said Markus Mezger, who manages investment portfolios at commodities hedge fund Tiberius.

But sentiment is now overheated and the supply/demand picture is not so supportive.

“We don’t find that prices are supported fundamentally above $80,” Mezger said. “On the demand side, the world economy might not be in such a good shape,” he said. “Supply from Opec will increase in November and we think there might be a second decision to jack up output again.”

This might tip the balance of the global oil market into a small surplus for the fourth quarter, he said.

On Thursday, the US placed new sanctions on Iran, the world’s fourth-biggest oil exporter, and accused its Revolutionary Guard of spreading weapons of mass destruction.

Iran is at odds with the United Nations over its nuclear programme.

An attack on a Nigerian oil rig operated by Italian firm ENI shut 50,000 barrels per day of production and reminded investors that Africa's biggest producer is a long way from restoring order and normal output in the oil-rich delta.

Weak dollar

Unprecedented weakness in the dollar has been another factor driving prices of dollar-denominated commodities higher.

In anticipation that the Federal Reserve may cut interest rates next week, the dollar hit fresh record lows against the euro and a basket of currencies on Friday.

While US oil has surged 50 per cent since the start of the year, the price rise in euros lags at 38 per cent.

Moves by central banks to cut interest rates and pump billions of dollars into financial markets to ease a credit crunch have added fuel to oil's rally. Since mid-August, when the Federal Reserve cut US rates, oil has climbed 30 per cent.

At the same time the US and European asset-backed commercial paper market has shrunk by some $400 billion.

Analysts said investor positions in US crude options suggested traders were betting on further rises. A wave of call, or buy, options kicked in on Thursday as US oil broke $90.

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