Oil prices hit a new record high above $126 on Friday as a weaker US dollar drove investments into commodities.
Light, sweet crude for June delivery rose $2.51 to a new record of $126.20 a barrel in electronic trading on the New York Mercantile Exchange by the afternoon in Europe. On Thursday, the contract rose to a record close of $123.69 a barrel.
In London, Brent crude contracts also hit record highs before slipping, and traded up $2.98 on the day at $125.82 a barrel on the ICE Futures exchange.
Earlier Friday, Brent had reached $125.90.
Comments Thursday from European Central Bank President Jean-Claude Trichet signaling the bank was unlikely to consider interest rate cuts helped strengthen the euro against the US currency.
By the afternoon in Europe, the euro stood at $1.5444 compared to $1.5404 in late trading on Thursday night in New York. The dollar was also weaker yesterday against the British pound and the Japanese yen. Investors view commodities such as oil as a hedge against inflation, and some analysts think the dollar's protracted decline is the main reason behind oil prices doubling from a year ago. Also, a weaker dollar makes oil cheaper to investors overseas.
On Friday, The Wall Street Journal published a report tying Venezuela President Hugo Chavez to rebels attempting to overthrow Colombia's government, heightening chances that the US could impose sanctions on one of its biggest oil suppliers as a state sponsor of terror.
"If we put on sanctions, I'm sure Chavez would threaten to cut off our oil supply," said Phil Flynn, an analyst at Alaron Trading Corp in Chicago. "Obviously, that would have a major impact on oil prices."