The price of oil soared to a new record level above $110 (£54) a barrel yesterday, oblivious to news that stockpiles of crude in the US were higher than expected.
Energy traders concentrated instead on the continuing weakness of the dollar, which is making oil cheaper for other countries and is encouraging speculators to buy oil as insurance against further declines by the US currency.
The oil price wobbled mid-morning as the US government reported that crude inventories rose by 6.2 million barrels last week, four times the increase that Wall Street had been predicting. However, the price correction was only brief, and the price surged once again to settle up $1.17 at $109.92.
At its high point of the day, a barrel for April delivery traded at $110.20.
"There has been a huge detachment between price and fundamentals in the energy markets," said Rob Kurzatkowski, futures analyst at optionsXpress. "It has been more of a dollar play of late."
The dollar resumed its slide against other major currencies in New York trading yesterday, amid concerns over the stability of the US banking system, fears that the credit crisis has tipped the economy into recession, and a growing worry that protectionist rhetoric by American politicians could lead emerging market governments to shun investment in the US.
One index of the dollar's value against a basket of other currencies put it at its lowest in the 40 years since the creation of the index, for the 10th time in 12 days. The dollar rally prompted on Tuesday – when the Federal Reserve said it would inject $200bn of new securities into the banking system, in order to ease the credit crisis – was largely unwound yesterday.
The dollar sank to $1.554 against the euro, after new hawkish speeches from officials of the European Central Bank, which is seen as less likely to cut interest rates than the Federal Reserve. The pound was worth $2.027.
Stoking fears for the US economy, the chief executive of the mortgage company Freddie Mac, Dick Syron, said he believed house price falls in the US were only "one-third" done. Falling house prices have triggered a wave of problems in the mortgage-backed credit markets.Reuse content