Crude futures' run to record levels driven largely by weakening dollar

NEW YORK -- Oil prices held near record highs Thursday and other energy futures were mixed as the weak dollar spurred buying of crude futures.

The Energy Department's report on Wednesday that oil inventories fell last week was also supporting prices, analysts said.

Oil prices have risen to records in seven straight sessions on the New York Mercantile Exchange on a mix of concerns about falling supplies and tight demand. But many analysts also blame an influx of speculative "nontraditional" capital into energy commodities. And that inflow increases when the dollar falls, analysts say.

"Oil futures ... are being supported once again by weakness in the dollar, which has fallen to a record-low against the euro at the same time the Dollar Index has fallen to its lowest level since August, 1992," said Addison Armstrong, an analyst with TFS Energy Futures LLC, in a research note.

"There just seems to be a huge amount of money out there that's moving to the oil in direct correlation with swings in the dollar," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill.

A weak dollar supports oil prices by making futures cheaper for foreign investors. That also prompts buying by domestic investors, who sense that demand for Nymex oil is rising overseas, Ritterbusch said.

"Seen through a euro or yen prism, nominal (Nymex crude) prices have yet to reach their 2006 highs," said Antoine Halff, head of energy research at Fimat USA LLC, in a recent research note.

Oil and natural gas markets appeared unimpressed by the prospect that a tropical depression could form soon in the Gulf of Mexico and hit critical gas and oil infrastructure.

Light, sweet crude for October delivery gained 41 cents to $82.34 a barrel on the Nymex, where it had settled at a record $81.93 a barrel on Wednesday. The October oil contract expires Thursday, and trading in expiring contracts is often volatile as traders move to square positions. Indeed, oil futures gyrated frequently between gains and losses.

In London, October Brent crude fell 28 cents to $78.19 a barrel on the ICE futures exchange.

October gasoline rose 1.54 cents to $2.1088 a gallon in morning trading Thursday on the Nymex.

Nymex heating oil futures fell 0.35 cent to $2.2418 a gallon. October natural gas fell 9.8 cents to $6.082 per 1,000 cubic feet after the government reported that inventories grew by 63 billion cubic feet last week, slightly below consensus analyst expectations.

Natural gas prices have not been affected by National Hurricane Center forecasts that a tropical depression or storm could soon form in the Gulf.

"The investors seem to be more focused on the big storms that form out in the open Atlantic," Ritterbusch said.

Oil and gas platforms are built to withstand smaller storms _ even of tropical strength, analysts say.

Several oil and gas companies have evacuated nonessential personnel from Gulf installations in recent days as a precaution. But Ritterbusch said such moves are routine this time of year.

"They really don't lose a significant amount of production when they do this," Ritterbusch said.

At the pump, meanwhile, gas prices are still not reacting much to record oil prices. Overnight, the average national price of a gallon of gas rose 0.1 cent to $2.791, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the gasoline futures market, peaked at $3.227 a gallon in late May.

While oil inventories fell last week, supporting prices, refinery activity fell and gasoline inventories grew. Many analysts believe gasoline prices are well past their peak for the year. Despite falling inventories, demand is also falling now that peak summer driving season has ended, analysts say.

Oil's rise in recent sessions has many analysts scratching their heads.

"We believe that global demand is significantly weaker than current record high prices would suggest," Ritterbusch said. "I'm just having an incredibly difficult time coming up with fundamental arguments to support these prices."

But the weak dollar and speculative investors could continue to send oil prices to new records for some time to come, analysts say.

"Crude futures will continue to attract nontraditional, index related capital into the long side of the market," Ritterbusch said.