Reuters - Oil soars to record near $108

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Oil soars to record near $108

Monday, Mar 10, 2008 6:38PM UTC

By Matthew Robinson

NEW YORK (Reuters) - Oil shot up more than 2 percent on Monday to a record near $108 a barrel, extending a rally led by investors seeking a hedge against the tumbling U.S. dollar and inflation.

U.S. crude traded up $2.24 to $107.39 a barrel by 1:20 p.m. EDT, off a record $107.85 hit earlier in the session. London Brent crude jumped $1.63 to $104.01.

Fears of a U.S. recession following the biggest U.S. job losses in five years and strains in the credit market have sunk the dollar and raised expectations the Federal Reserve could cut interest rates again to prop up the economy.

Speculators have rushed into commodities as a hedge against rising inflation, helping to lift oil to average over $95 so far this year despite signs the faltering U.S. economy is crimping demand in the giant market.

"What you have seen over the last few months is fantastic strength in a whole range of commodities, all of which together significantly add to inflation and erode real incomes and profits," said Michael Saunders of Citigroup.

"If it were just oil it would be more manageable, but it's not ... What you are seeing now is far more widespread and therefore more damaging."

A fall in U.S. crude oil inventories reported in government data released last week and OPEC's decision on Wednesday to hold supplies steady have also boosted prices.

OPEC President Chakib Khelil was quoted on Monday as saying speculation and political tension would keep prices at triple digits through the year, and some analysts are adjusting their forecasts higher.

"We certainly do see the balance for the rest of the year averaging $100," said Paul Horsnell of Barclay's Capital.

"But we are not going to say that it's going to stay above $100 for every single minute of every trading day for the rest of the year."

Cartel officials insist that speculators are driving up oil prices and that supply and demand fundamentals do not support current levels.

Khelil said prices could retreat in 2009 with a recovery of the U.S. dollar following the election of a new U.S. president and as fundamentals reassert themselves.

OPEC will next meet in September, although ministers could confer informally at a conference between consumers and producers in Rome on April 20-22.

(Additional reporting by Daniel Fineren in London and Fayen Wong in Sydney; Editing by David Gregorio)