Oil jumps to a new high as the dollar withers again

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Oil at $120 a barrel soon?

That’s the buzz in the futures markets today as the price of crude surges again, reaching a record high of $112 a barrel, up from $108.50 on Tuesday.

One catalyst for today’s rally is the government’s weekly report on U.S. crude inventories, which showed a bigger-than-expected drop of 3.2 million barrels last week. But that may be largely a short-term problem caused by fog-related shipping delays for oil tankers entering the Port of Houston, analysts said.

A more important factor driving oil may be the dollar’s renewed slide, particularly against the euro, which hit a record $1.587 today, up from $1.572 on Tuesday.

Because oil and other commodities are priced in dollars, the buck’s continuing slump means oil exporters get less for their product -- unless they allow the price to rise.

OPEC President Chakib Khelil said at a conference in London on Tuesday that ‘the downfall of the dollar’ was a major concern for the cartel.

‘It’s all dollar-driven,’ said Frank McGhee, a commodities trader at Integrated Brokerage Services in Chicago. ‘OPEC is reemphasizing that they’re going to defend the value of oil.’

He thinks crude is going to $120, even as the U.S. economy weakens.

What’s good for oil is good for a lot of other commodities as well today: Money is pouring back into the stuff. Soybeans, sugar, gold, cotton and most other hard assets are up in futures trading -- while the stock market slides.