Light, sweet crude for June delivery settled at US$118 on the New York Mercantile Exchange by midmorning in Singapore. The previous session witnessed oil prices spike to a record US$120 levels as the US dollar continued to weaken, and concerns about unstable supply mounted amid firm global demand. The dollar dropped to a record low against the euro, helping draw more funds from investors who see commodities such as oil as a hedge against inflation and a falling dollar. A weaker dollar also makes oil cheaper for investors overseas. An expected cut in interest rates further this year to shore up the ailing US economy is expected to further weaken the dollar.
Oil is now nearly double its closing price a year ago, and up 24% in 2008. As per the International Energy Agency, global oil demand is expected to rise about 1.3 mln bpd this year to 87.2 mln bpd. Oil markets continue to be plagued by supply issues:
A Royal Dutch Shell PLC joint venture declared a force majeure on April and May oil delivery contracts from a 400,000 bpd Nigerian oil field due to a pipeline attack last week.
In Mexico, oil production fell by 7.8% in the first quarter to 2.91 mln bpd as output at the country's oil fields waned.
In Scotland, workers at Ineos PLC's 196,000 bpd Grangemouth refinery and petrochemical plant threatened to strike over changes to an employee pension plan.