Oil rose to a new record high above US$143 a barrel Monday, as expectations of a weaker dollar spurred investors to seek refuge in dollar-denominated oil futures as a hedge against inflation.
Prices abated slightly by the afternoon in Europe as the dollar rebounded against the euro and the Japanese yen.
Light, sweet crude for August delivery was up US$1.77 to US$141.98 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, the contract rose to a new record high of US$143.67 before falling back.
On Friday, crude futures had spiked at a record US$142.99 a barrel in New York before falling to US$140.21.
In London, Brent crude futures rose US$2.11 to US$142.42 a barrel on the ICE Futures exchange in London. Earlier Monday, the price for Brent had peaked at US$143.91.
A survey in the U.S., meanwhile, showed that prices at the pump continued to rise, with the national average for gasoline at US$4.086 a gallon. The previous record of US$4.08 was reached June 16.
"The main factors behind the rise today are the U.S. dollar remains fragile and geopolitical tensions, particularly surrounding Iran," said David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney. "That's unsettling for the oil market."
The European Central Bank may raise interest rates at its next meeting Thursday, a move that would help strengthen the euro against the dollar, Moore said.
Analysts said daily trading volumes for Nymex oil would probably continue last week's trend and stay on the light side, leading to higher volatility during the trading sessions.
"We would not expect liquidity to be much better this week, as it will be a short trading week due to the July 4 weekend," Olivier Jakob, of Petromatrix in Switzerland, said in a research note.
Worries about tight oil supplies and growing global demand are also major factors in the doubling of oil prices since last year, Moore said.
Traders were digesting reported comments from the commander of Iran's Revolutionary Guards, who warned that if his country is attacked, Tehran would strike back by barraging Israel with missiles. In a report published Saturday in the conservative Jam-e-Jam newspaper, Gen. Mohammad Ali Jafari said that if Iran were provoked, it would also move to control a key oil passageway in the Gulf.
Iran is the world's fourth-largest oil exporter and about 60 percent of the world's oil passes through the strategic Strait of Hormuz.
The report comes after the disclosure of a recent Israeli military exercise over the Mediterranean Sea that was seen as sending a message to Iran to curb its nuclear ambitions.
The dollar has weakened on expectations the Federal Reserve Board won't soon raise interest rates as the U.S. economy struggles with low growth. The Fed left its benchmark rate unchanged last week.
The dollar dipped to 105.19 yen Monday from 106.12 late Friday, but had recovered to 105.72 by the afternoon in Europe. The euro also lost some ground on the U.S. currency, down to 1.5756 from US$1.5808 earlier Monday.
"ECB President Jean-Claude Trichet's hawkish stance (on) inflation" could mean the dollar may be headed for further weakness against the euro "and that's not bearish for oil," said The Schork Report edited by U.S. analyst and trader Stephen Schork.
A falling U.S. stock market has also led investors to seek higher-yielding investments such as oil and other commodities. The Dow Jones industrial average has fallen to its lowest level in nearly two years _ and is down nearly 20 percent since its peak in October.
In other Nymex trading, heating oil futures rose 5.86 cents to US$3.9652 a gallon (3.8 liters) while gasoline prices rose 4.39 cents to US$3.5451 a gallon. Natural gas futures increased 15.7 cents to US$13.355 per 1,000 cubic feet.
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AP Business Writer Malcolm Foster in Bangkok, Thailand, contributed to this report.
