Oil prices hit fresh peaks on Wednesday, rising to their highest since August 2008, buoyed by unrest in the Middle East and North Africa and dollar weakness ahead of an expected European Central Bank interest rate rise.
Brent crude rose $1 to breach $123 a barrel, its highest since August 2008, and U.S. crude rose to its highest since September 2008 above $109.
Both contracts pared gains later in the day after a U.S. oil data release, trading mostly flat versus Tuesday’s close.
The ECB is expected to raise interest rates by 0.25 percent on Thursday in the first hike since the 2008 financial crisis. The expectations have propelled the euro to a 14-month high while the dollar index .DXY was down 0.34 percent at 1450 GMT.
“Central bankers will always claim that they have no influence on oil prices but recent history has repetitively shown that in the new world, where commodities are a global asset, central bankers can have a greater influence on oil prices than OPEC,” said Olivier Jakob from Petromatrix.
Members of the Organization of the Petroleum Exporting Countries said on Wednesday they could do little to control prices driven by speculators betting on “worst case scenarios” and said the market had all the oil it needed.
The rally in the euro took place even though Moody’s rating agency cut several Portuguese banks and the country paid higher costs at a T-bill auction.
Analysts said a return of risk appetite amid expectations of strong recovery in the United States had outweighed yet another increase in China’s interest rates on Tuesday, the fourth since October, to tame inflation.
“Tightening measures have been in place since H2 2010 without any noticeable drag on oil demand,” said James Crandell from Barclays Capital. “Indeed, Chinese oil demand strength of late has been herculean, up 10 percent year-on-year,” he added.
CHINA RAISES PRICES
Also on Wednesday, China raised retail gasoline and diesel prices by 5.0-5.5 percent but the country’s battle with inflation prompted analysts to suggest the government may refrain from announcing bigger rises.
A Reuters poll showed on Wednesday China was expected to raise interest rates only once more this year as it is heading for a pause in its cycle of monetary tightening.
Singapore-based Serene Lim of ANZ said the impact from the hike would be mitigated by the turmoil in Libya.
“It is a stalemate in Libya and this will give support to oil prices, which are trading at a very tight range,” she said.
In Libya, the head of the rebel army said NATO had been too slow to order air strikes to protect civilians.