Oil powered to a new record above $102 a barrel today, closing in on its inflation-adjusted lifetime peak, as an ailing dollar on worsening US economic data triggered a surge across commodities markets.
US crude stood 15 cents higher at $101.03 a barrel by 1pm, off its new record high of $102.08 and its 1980 inflation-adjusted peak of $102.53.
London Brent crude climbed 16 cents to $99.63 a barrel, after earlier hitting a record of $100.30.
The dollar slumped to an all-time low against the euro as well as a basket of major currencies after data from the United States highlighted a gloomy outlook for the US economy, raising the spectre of more rate cuts.
A weak dollar can trigger commodities buying as investors seek to preserve their nominal value in other currencies.
The price of oil has risen nearly 66 percent in the past year in US dollar terms, whereas in terms of euros, the rise has only been around 47 per cent.
Analysts and investors also said that the US was seeing a sharp increase in inflation, after data showed that producer prices rose 1 per cent in January and by 7.4 per cent on an annual basis, the biggest 12-month gain in more than 26 years.
"In this climate, therefore, people tend to buy real assets like oil and gold," said Colin Morton, investment director at Rensburg Fund Managers.
Edward Meir at MF Global added the economic backdrop in the US now was similar to the stagflation of the late 1970's, which saw rising inflation and low growth.
"In this type of environment, commodities do quite well, since participants turn to hard assets to protect themselves against eroding purchasing power," he said.
Barclays Capital raised its average oil price forecast for 2008 to $97.7 a barrel from $87.4 previously. Oil has averaged around $93.66 so far this year, up from $72.30 in 2007.
Most commodities markets pushed higher on Wednesday with gold hitting a new record high, and copper, aluminium and silver also hovering near multi-year peaks, underscoring their attraction to investors as a hedge against the dollar and an alternative to other financial markets.