Oil holds above $124 after record

By THOMAS HOGUE
AP Business Writer

Oil prices held above $124 a barrel Friday in Asia after hitting an intraday trading record as bullish momentum and renewed weakening of the U.S. dollar kept the commodity on its upward trend.

Analysts, though, struggled to explain the continued strength of oil futures after a larger-than-expected build in crude oil stocks reported Wednesday in the United States. Some pointed to a small decline in distillate stocks, which include diesel and heating oil and normally drive prices during the Northern Hemisphere winter; others said it was mostly speculation and momentum keeping oil prices high.

Mark Pervan, senior commodity strategist at ANZ Bank in Melbourne, said it may be a combination of continued wariness over potential supply disruptions as well as prospects for a strengthening in crude demand heading into the U.S. summer driving season.

"U.S. gasoline stocks have certainly dropped quite sharply over the last month," he said. "What´ll happen in the near term is that we may likely see an uptick in U.S. refining capacity to rebuild gasoline stocks and we may see a short-term build in crude demand as a result."

Light, sweet crude for June delivery rose 78 cents to $124.47 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. It had earlier hit a trading record of $124.73 a barrel.

On Thursday, the contract rose 16 cents to a record close of $123.69 a barrel.

While last week´s decline in distillate stocks didn´t bring them to "extraordinarily low" levels, Pervan said, "the last couple of weeks ... (the market´s) very much driven on anything that´s a tight supply story."

Goldman Sachs analysts recently predicted prices will rise as high as $150 to $200 a barrel within two years, and that forecast has also driven much of oil´s gains in recent days.

Analysts at Goldman and firms such as Barclays Capital believe tight global supplies and growing demand from fast-growing economies in countries such as China and India are driving oil higher.

Other analysts say there is still bias against the U.S. dollar, which has again started to weaken versus such currencies as the euro and yen. In Tokyo´s currency market, the dollar was at 103 yen by late afternoon, down from levels near 105 earlier in the week, and the euro was at $1.548 after dipping below $1.53 on Thursday.

Investors view commodities such as oil as a hedge against inflation, and some analysts think the dollar´s protracted decline is the main reason behind oil prices doubling from a year ago. Also, a weaker dollar makes oil cheaper to investors overseas.

Prices may also be getting a boost from comments Thursday by the OPEC secretary general.

Abdalla Salem El-Badri on Thursday reiterated his position that oil supplies are adequate, and that there is no need for the cartel to boost production. He said several Organization of Petroleum Exporting Countries oil projects are coming on line, but he noted that several member countries are having a hard time finding buyers for their additional supplies.

In other Nymex trading, June gasoline futures rose 1.02 cents to $3.148 a gallon, while heating oil futures rose 0.78 cent to $3.5176 a gallon. Natural gas futures rose 1.2 cents to $11.275 per 1,000 cubic feet.

In London, June Brent crude futures rose 89 cents to $123.73 a barrel on the ICE Futures exchange in London.