OiL PRICES: Oil eases below $105USD

Oil fell below $105 a barrel on Monday, but remained within sight of an all-time high as investors sought oil as a hedge against a depressed U.S. dollar and inflation.

A rush by financial funds into commodities and political tensions are the prime drivers of a rally that took oil to a record $106.54 on Friday. US crude was off 74 cents at $104.41 by 1030 GMT. It hit a record high of $106.54 last Friday. London Brent crude was off 78 cents at $101.60.

Recession fears following the biggest U.S. job losses in five years and strains in the credit market combined to depress stocks and the dollar and to send investors to seek safety. "The disconnect between slowing U.S. growth and a soaring commodity/energy complex has truly been quite remarkable," said Edward Meir of MF Global.

"But ... as the U.S. growth picture starts to deteriorate, it will displace the two driving forces behind the current commodity price surge, namely the weaker dollar and the massive fund flows going into the sector."

The steady decline in the U.S. dollar has helped push commodity prices higher, while a sharp drop in U.S. crude stocks and Organization of the Petroleum Exporting Countries's decision last week to hold supplies steady has also boosted oil prices. The group's president, Chakib Khelil, said speculation and political tension would keep prices at triple digits during the "current financial year."

It was not immediately clear which fiscal year he was referring to. The Organization of the Petroleum Exporting Countries, which pumps more than a third of the world's oil, has long argued the current high prices do not reflect market fundamentals and are being driven by speculation. Organization of the Petroleum Exporting Countries will next meet in September, although ministers could confer informally at a conference between consumers and producers in Rome on April 20-22.

Easing tensions between Organization of the Petroleum Exporting Countries member Venezuela, a top oil exporter to the United States, and neighbour Colombia, also kept oil price gains in check. The presidents of Colombia, Ecuador and Venezuela ended a border dispute on Friday, after a week of regional diplomacy in the face of hostile rhetoric and troop build-ups.

NYMEX crude has set an intraday record 12 times since Jan. 2, when prices first hit $100. Settlements above $100 have been reached in nine of the last 14 sessions, the latest being Friday's $105.15. Crude speculators on the New York Mercantile Exchange hiked net long positions last week, according to data from the Commodity Futures Trading Commission released on Friday.

Net crude long positions rose to 99,539 in the week to March 4, up from 91,625 in the week to Feb. 26. But MF Global's Meir said this was reason for caution. "In crude's case, net noncommercial positions have expanded to high levels, levels that in the past have indicated signs of a nearing top," he said.

Source: India Economic Times