As we mentioned yesterday, Crude broke its previous high of $103.76.
"The surge in energy prices is taking place as investors seek refuge in commodities to offset a slowing economy and a declining dollar. Analysts pointed out that financial institutions like pension funds and hedge funds are also buying oil and other commodities like gold as hedges against a rise in inflation.
That trend is expected to continue, especially after Ben S. Bernanke, the chairman of the Federal Reserve, signaled last week that he was ready to cut interest rates further to bolster economic growth, despite rising consumer prices.
“When investors lose confidence in the central bank, they tend to look for hard assets,” said Philip K. Verleger, an economist and oil expert. “The Fed’s capitulation on inflation is driving investors to commodities.”
The latest catalyst for the spike in energy prices has been the recent fall in the value of the dollar, analysts said. Currency traders are selling dollars and buying euros to take advantage of the difference in interest rates between the United States and Europe. Like many commodities, oil is priced in dollars on the international market. A falling dollar tends to buoy oil prices in part because consumers using stronger currencies, like the euro or yen, can afford to pay more per barrel.
Apologies if this line of argument looks familiar –we’ve been hitting these notes for quite a long while . . .
Oil Tops Inflation-Adjusted Record Set in 1980
NYT, March 4, 2008