Crude Oil surges to $107

The New York Mercantile Exchange (Nymex) benchmark oil contract has exceeded $107 per barrel in midday trading as the value of the US dollar continues to plunge

In the space of one month, West Texas Intermediate (WTI) has been up by nearly $20 per barrel (/bbl). WTI for April delivery rallied by 2.2%, to reach a new record of $107.44/bbl in late-morning trading in New York.

In London, prices for ICE Brent crude climbed 0.4% to $102.81 a barrel on London's ICE Futures Europe exchange. Futures reached a record $103.98 a barrel on March 7.

"The sliding dollar and the flocking of speculative interests towards energy as an inflation hedge have been key factors propelling the rally's recent leg higher," said MFGlobal's John Kilduff, referring to the recent US Commodities Futures Trading Commission (CFTC) Commitment of Traders report, which showed that investors increased their net long exposure in crude and refined product markets by 12.4k lots last week, with the increase mostly due to the closing out of short positions in crude oil.

According to the CFTC, net long positions in the crude oil market have now increased for four straight weeks and are at their highest since the beginning of November.

Kilduff warned that a price correction may be due. "Given the market's overbought technical condition we certainly can't rule out a break in April crude oil back towards and perhaps under $100," he said.

While many analysts see the rising price of oil highly correlated with the continuing fall of the US dollar, others point out that the fundamental picture is supportive.

"Tight fundamentals remain the dominant force underpinning prices in our view, with the combination of disappointing Non-Opec production, solid non-OECD demand and defensive Opec output policy all exerting upward pressure on prices," said Barclays Capital in a research note.

Goldman Sachs’s forecast for 2009 US crude-oil prices was raised to $105 from $90/bbl, in a report dated March 6, citing the levelling off of non-Opec production and continuing demand from Asian economies. China, the second-biggest oil-consuming country, increased crude-oil imports by 18% last month.

In the same research report, Goldman Sachs said $200/bbl crude could be a reality in the event of a major supply disruption.

"A future rebound in US gross domestic product growth or a major oil supply disruption could lead to $150-$200 a barrel oil prices," it said.

Lehman Brothers raised its first-quarter forecast for Brent and WTI crude-oil grades by 8%, forecasting a Brent average of $92/bbl and $93/bbl for WTI.

According to Bloomberg data, put contracts for $90/bbl were the most-actively traded options contracts on the Nymex today. The put contracts, which represent the right to sell oil at that price, fell 16 cents to 55 cents, or $550 per contract, the lowest since November.