Oil prices jumped to their highest level in more than three months yesterday, rallying above $51 a barrel as traders focused on the declining value of the dollar, cold weather, and the possibility of an OPEC production cut.
But if these factors provided the initial impetus for the 6 percent run-up, analysts said speculative buying by institutional investors was the force that kept it going.
After climbing as high as $51.40, light sweet crude for March delivery settled at $51.15 a barrel on the New York Mercantile Exchange, an increase of $2.80. The March contract expired yesterday, but April crude also looked strong, settling at $51.42 a barrel.
Oil is 50 percent more expensive than a year ago and prices for products derived from it are similarly high: unleaded gasoline averages $1.91 per gallon at the pump nationwide, according to the Energy Department.
"The big factor right now is the weak dollar," said Tom Bentz, a broker for BNP Paribas Commodity Futures. Crude oil is denominated in dollars, so the money the Organization of Petroleum Exporting Countries earns for every barrel does not stretch as far as it used to.
Moreover, as the dollar falls against other nations' currencies, it becomes that much less expensive to purchase crude oil in those countries, potentially raising demand.
Heating oil futures rose 9.09 cents to $1.4402 per gallon on Nymex, where gasoline futures surged 4.55 cents to $1.3089 per gallon. Brent crude was up $1.87 on London's International Petroleum Exchange, fetching $48.62 a barrel.
Adnan Shihab Eldin, acting secretary-general of OPEC, has said the group may cut an additional 1 million barrels a day when it meets in Iran on March 16.