Rally looks set to run and run

New York : Crude oil rose above $142 a barrel for the first time as falling stock markets spurred investment in commodities.

Oil has climbed 47 per cent this year as the dollar declined eight per cent against the euro and the MSCI World Index of global equity markets dropped 12 per cent. Oil may extend gains if the European Central Bank boosts rates on July 3, further weakening the US currency.

"The weak dollar has been pushing prices higher, and you are seeing more money shifting from equities into commodities,"said Tom Bentz, a broker at BNP Paribas in New York. "The market may take a rest after breaking through $142 for the first time, but by no means does that mean the rally is over.''

Crude oil for August delivery rose $1.20, or 0.9 percent, to $140.84 a barrel at 11.43 am on the New York Mercantile Exchange. Futures advanced as much as $2.62 a barrel to a record $142.26 earlier yesterday.

Prices, which are up 39 per cent this quarter, are heading for the biggest quarterly gain since the first three months of 1999 when oil traded between $11 and $17.

On Thursday, the contract jumped $5.09, or 3.8 percent, to $139.64 a barrel, a record settlement price, as Libya threatened to cut output and OPEC's president said prices may reach between $150 and $170 within months.

"I don't know when this rally will end because there are too many folks in the finance community betting on prices to rise,"said Rick Mueller, director of oil practice at Energy Security Analysis Inc. in Wakefield, Massachusetts. "Gains have nothing to do with the physical market."

The Standard & Poor's 500 Index declined 12.7 per cent so far this year to 1,281.38. The Dow Jones Industrial Average dropped 14.1 per cent to 11,3947.40 during the same period.

Brent crude oil for August settlement rose $1.05, or 0.8 per cent, to $140.88 a barrel on London's ICE Futures Europe exchange. Prices earlier climbed to $142.13, the highest since trading began in 1988.

BP shut a crude-oil unit for repairs at its Dutch refinery, Europe's second-largest, cutting fuel production, two people familiar with the work said.

Repairs to one of the two crude distillation units at the 400,000 barrel-a-day plant in Rotterdam are scheduled to begin this weekend and last until about July 19, the people said, declining to be named because the information is confidential. BP spokesman Robert Wine in London couldn't immediately comment.

The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, rose as much as 1.1 per cent to a record 1683.928 today. Corn reached a record, and rubber advanced to a 28-year high.

ECB President Jean-Claude Trichet reiterated in a June 25 speech that policy makers may increase the main refinancing rate by a quarter-percentage point next month to contain inflation.

The Federal Reserve left the benchmark US rate at 2 per cent on June 25. On September 18, the Fed began cutting rates to bolster an economy already reeling from a credit crisis.

"The Fed, in the eyes of oil traders, didn't do enough to bolster the value of the dollar," said Addison Armstrong, director of market research at TFS Energy. "What the ECB does in a few days will have a big impact on the dollar and oil."

The dollar was little changed at $1.5751 per euro as of 11.47 a.m. It fell to $1.6019 on April 22, the lowest since the euro's debut in 1999.

London (Reuters) Oil prices will rise for the foreseeable future, a Reuters poll found yesterday, marking the first time average forecasts have envisaged the extended rally has years to run.

Previous Reuters polls showed analysts overall predicted US crude oil would stop rising this year and fall in 2009-10.

The June poll showed US crude in 2008 would average $113.24 a barrel, up by about $6 from the last poll in late May. The average price would be $113.25 in 2009 and $115.59 in 2010.

The average price for oil last year was $72.30.

North Sea Brent, another major price marker, is expected to average $112.02 this year, compared with $106.12 in the last poll. It will dip slightly next year and rise again in 2010. Oil prices have surged beyond many analysts' expectations this year to a record high above $142 yesterday, forcing them to revise price assumptions repeatedly.

"We have substantially raised our crude oil forecasts as the resilience of prices, even in the face of a withdrawal of speculative funds, has become increasingly evident," Helen Henton with Standard Chartered said.

Analysts' forecasts for US crude this year showed a wide divergence of about $30.

Financial group Fortis had the most bullish short-term view, revising up its forecasts by about $40. Fortis expected US crude to average $125.70 this year, $171.50 next year and $224.90 in 2010.