Oil blasts towards $99 on weak dollar, gold surges

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LONDON, Nov 07 (Agencies): Crude oil and gold prices surged to fresh highs Wednesday amid renewed dollar weakness as investors sought refuge from a second wave of credit turmoil.
The closure of several North Sea oil production platforms because of bad weather was underpinning the market, traders said. ConocoPhillips and BP were expected to reduce production in the area ahead of a powerful storm.
The US dollar hit an all-time low against the euro, as global credit market turmoil kept expectations of another Federal Reserve rate cut alive.
Oil stormed towards $99 a barrel Wednesday, closing in on a triple-digit all-time high, driven by a slumping US dollar and concern about a fuel supply crunch heading into the peak demand winter season.
The surge brings oil within a hair of the inflation-adjusted record peak of $101.70 hit in 1980 when war between OPEC producers Iran and Iraq ignited an oil supply crisis.
But this time round, demand -- fuelled by exploding growth in China and a steady increase from the US -- has been a major drive behind a more-than-quadrupling in the oil price since 2002.
The combination of strong crude oil prices and a weakening dollar boosted gold prices Wednesday to a fresh 28-year high of $836.75 an ounce, just below its all-time high of $850 reached in January 1980.
Spot bullion was trading in early London morning at $833.5 an ounce.
Precious metals traders said investors were adding to their gold positions - no one was selling. David Holmes, head of precious metals at Dresdner Kleinwort in London, said a rise to $850 was "very much on the cards".
John Reade, head of metals strategy at UBS in London, upgraded its one-month gold forecast to an "inevitable" $850 an ounce.
The dollar fell to a record low against the euro of $1.4666 as investors bet that the US Federal Reserve would further cut interest rates to prop up the economy hit now by a second wave of credit turmoil and comment from Chinese authorities about diversification of their currency reserves.
Sterling matched a near 26-year high against the dollar, rising to $2.0906 on speculation the Bank of England would keep interest rates on hold as the Fed cuts.
World Energy Outlook
Meanwhile, Wednesday morning, the International Energy Agency warned that soaring demand for oil in China and India would raise long-term prices and increase the danger of disruption to supply.
In its annual World Energy Outlook, released on Wednesday morning, the rich countries' energy watchdog also said there was an urgent need for increased investment to meet the need for oil, gas and electricity.
The IEA warned that although investment in the oil industry was expected to rise over the next five years, "it is uncertain whether [it] will be sufficient to offset both the decline in output at existing fields and the projected increase in demand".
The cost of using options contracts to insure against crude oil trading at $100 in a year's time surged to $4.15 per barrel, up almost 70 per cent since the end of October.
Consumers face higher oil prices and the risk of a supply crunch as output may fail to match demand, the IEA said.
The adviser to 26 industrialised countries also lifted an estimate of how much the world needs to invest in oilfields by 2030 to $5.4 trillion and warned that a shortfall would send prices even higher.
Oil is within sight of $100 a barrel, leaving consumer governments worried about their economies. It could hit a nominal $159 in 2030 under higher than expected demand growth, said IEA Chief Economist Fatih Birol.