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Oil prices near US$72, strike new high for 2009

OIL prices surged again yesterday to a new high for the year with investors pouring money into crude markets as a hedge against inflation.

Adding to crude's advance was new government data that showed an uptick in U.S. demand for gasoline, yet given how much cheaper gas is compared to last year, the recession is clearly taking a toll on consumers and businesses.

Benchmark crude for July delivery rose US$1.32 to settle at US$71.33 a barrel in trading on the New York Mercantile Exchange after earlier touching US$71.79. It was the second time in as many days that crude hit new heights this year at the close.

As U.S. currency has lost value over the past several months, crude prices have doubled largely from the influx of cash from Wall Street. Investors have used oil and other commodities as a hedge against a weak dollar.

The most recent government reports show that investors who are not buying and selling oil for commercial purposes, such as airlines who hedge energy costs, have entered the market and are betting crude oil is going to rise.

Equity markets have rebounded on the belief that the worst of the recession is over and that has helped pull energy prices higher, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

"That kind of economic optimism easily feeds into expectations that oil demand will be coming back sooner than expected," Ritterbusch said.

Crude and gasoline held in U.S. storage facilities tumbled last week, the government reported yesterday, as Americans took to the road for the summer driving season.

But the country is still flush with gasoline and oil, and it's the weak dollar that has driven crude prices higher for weeks.

The Energy Department's Energy Information Administration said Tuesday that crude prices will likely average US$67 a barrel in the second half of 2009, about US$16 higher than the first six months of the year. A month ago, the EIA's price-per-barrel forecast for the second half of 2009 was US$55.

The EIA also predicted consumers will be paying US$2.70 for a gallon of gasoline by July before prices level off.

In other Nymex trading, gasoline rose by 4.86 cents to settle at US$2.0153 a gallon while heating oil settled at US$1.8326 a gallon - up 2.5 cents. Natural gas for July delivery fell 2.3 cents to US$3.708 per 1,000 cubic feet.

In London, Brent prices rose in tandem with Nymex crude, gaining US$1.11 cents to US$70.73 a barrel on the ICE Futures exchange. Trader and analyst Stephen Schork noted that "for the thirteenth time in the last 15 sessions, London crude for July delivery posted a new year-to-date high."


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