Oil Rises Above $102 as Weak Dollar Boosts Commodities Prices

Feb. 27 -- Crude oil rose to a record above $102 a barrel as a weakening dollar spurred investors to buy commodities priced in the U.S. currency.

Futures jumped in New York and London as the dollar fell to an all-time low against the euro. The UBS Bloomberg Constant Maturity Commodity Index rose to the highest ever, on gains for gold, silver, sugar, copper and coffee. A government report later today is expected to show U.S. crude inventories rose last week.

``This record is purely a play on the weakness of the dollar, as investors use both crude and gold as a hedge against inflation,'' said Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland. ``If the dollar keeps getting weaker, and we don't have inventory builds today, it could drive prices towards $105.''

Crude oil for April delivery rose as much as $1.20, or 1.2 percent, to $102.08 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $101.35 at 10:52 a.m. London time.

Prices pared gains after a Persian Gulf official familiar with Saudi Arabian oil policy said prices are higher than they should be and inventory gains are likely to continue through to the second quarter.

The dollar weakened to $1.5088 a euro, the lowest since the European single currency was introduced in 1999. The dollar has declined against all of the world's 16 biggest currencies in the past 12 months apart from the Korean won and South African rand.

`Intrinsic Value'

``Because oil has an intrinsic value, it's not exactly sensible that it becomes cheaper in other currencies so you get an adjustment upward in the U.S. dollar value of oil,'' said David Moore, commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. ``The general strength of commodity prices would instantly improve sentiment toward the oil price.''

Gold, up 15 percent this year, rose to a record $963.09 an ounce today in London, while silver advanced to a 27-year high. Among agricultural commodities, Robusta coffee climbed 2.1 percent on the Liffe exchange.

Brent crude for April settlement climbed as much as $1.06 to $100.53 a barrel on London's ICE Futures Europe exchange, the highest since trading began in 1988. It traded at $99.90 at 10:52 a.m. local time.

Hedge-fund managers and other large speculators increased net-long positions, or bets on higher oil prices, in the week ended Feb. 19, according to a Commodity Futures Trading Commission report issued at the end of last week.