(Updates with more analyst comments, paragraphs 5-9)
By Matthew Robinson
NEW YORK, June 5 (Reuters) - Oil surged $6 to over $128 a
barrel on Thursday in the largest outright gain on record as
signals the European Central Bank may raise interest rates this
year pushed down the U.S. dollar.
U.S. crude <CLc1> traded up $6.08 to $128.38 a barrel after
settling up $5.49 earlier at 127.79, erasing two days of sharp
losses that had been triggered by worries high prices were
starting to eat into global demand.
London Brent crude futures <LCOc1> settled $5.44 higher at
$127.54 a barrel, before trading up to $127.83 in
post-settlement activity.
Oil prices have doubled in a year on growing Asian demand
and as investors rushed into commodities as a hedge against the
weak dollar and inflation, helping drive crude to a record $135
a barrel in May.
"The dollar had a reversal and that helped to support
crude," said Tom Bentz, BNP Paribas Commodity Futures Inc.
"Basically, this is still an uptrend that goes back 10
years. It is going to take more than two days of losses and
talk of demand destruction to end it."
Thursday's surge came as the greenback fell sharply against
the euro on after European Central Bank President Jean-Claude
Trichet signaled possible rate hikes later this year. []
The comments offset a rare warning this week from the U.S.
Federal Reserve on the inflationary risk of a weak dollar,
suggesting more interest rate cuts this year are not likely.
"If the ECB does raise rates it has the same impact on the
dollar as the U.S. cutting rates. So the feeling is, here we go
again with the weaker dollar," said Peter Beutel, president of
Cameron Hanover.
DEMAND WORRIES
Oil's losses this week came from concerns that Asian demand
growth -- which has helped underpin the six-year rally -- could
falter as some countries ease fuel subsidies.
"You have a large layer of global oil demand which is
undertaking cuts in subsidies. Right now, that is what's
driving the fundamental worries," said Olivier Jakob, analyst
at Petromatrix.
This week, India raised retail petrol and diesel fuel
prices by about 10 percent and Malaysia hiked petrol prices by
41 percent, after Taiwan, Sri Lanka and Indonesia reviewed
their subsidies last month. []
Rising fuel prices in Asia and weaker consumption in the
United States, the world's top consumer, are expected to lead
to further reductions in estimates for global oil demand growth
in 2008.
The International Energy Agency, adviser to 27
industrialised countries, issues its latest forecasts next week
and has said it may lower its 2008 demand projection further.
The U.S. Energy Information Administration on Wednesday
reported gasoline inventories rose 2.9 million barrels last
week while gasoline demand over the past four weeks slumped 1.4
percent versus last year. []
Distillate stocks jumped by 2.3 million barrels, while
crude stocks fell 4.8 million barrels.
(Reporting by Matthew Robinson, Gene Ramos, and Robert Gibbons
in New York; Alex Lawler in London; Maryelle Demongeot in
Singapore; Editing by David Gregorio)
