(Recasts throughout, updates prices)
By Santosh Menon
LONDON, Feb 27 (Reuters) - Oil steadied above $100 a barrel
on Wednesday, stepping back from its latest record peak, as the
market paused for breath ahead of key data that is expected to
show U.S. crude oil stocks rising for the seventh straight week.
Oil rallied to a new record of $102.08 a barrel earlier in
the session, closing in on its inflation-adjusted lifetime peak
of $102.53, after a plunging dollar on worsening U.S. economic
data triggered a surge across commodities markets.
Ahead of the U.S. government's 1530 GMT data release, U.S.
crude <CLc1> stood 15 cents down at $100.73 a barrel. Its
London counterpart Brent <LCOc1> was 7 cents down at $99.40 by
1419 GMT, off a record high of $100.30 hit earlier.
A poll of analysts by Reuters forecast crude oil stocks
rising on average by 2.5 million barrels last week, the seventh
increase in a row, as refineries undergoing maintenance have
built up inventories. []
The poll forecast U.S. distillates stocks, including heating
oil and diesel, maintaining their seasonal decline, down 2.1
million barrels, due to cold temperatures and a dip in
production and imports.
Oil's rally earlier on Wednesday came as the dollar slumped
to an all-time low against the euro as well as a basket of major
currencies as a steady stream of data from the United States
highlighted a gloomy outlook for the U.S. economy, raising the
spectre of more rate cuts.
A weak dollar can trigger commodities buying as investors
seek to preserve their nominal value in other currencies.
The price of oil has risen nearly 66 percent in the past
year in U.S. dollar terms, whereas in terms of euros, the rise
has only been around 47 percent.
Analysts and investors also said that the U.S. was seeing a
sharp increase in inflation, after data showed that producer
prices rose 1 percent in January and by 7.4 percent on an annual
basis, the biggest 12-month gain in more than 26 years.
"In this climate, therefore, people tend to buy real assets
like oil and gold," said Colin Morton, investment director at
Rensburg Fund Managers.
STAGFLATION
Edward Meir at MF Global added the economic backdrop in the
U.S. now was similar to the stagflation of the late 1970s, which
saw rising inflation and low growth.
"In this type of environment, commodities do quite well,
since participants turn to hard assets to protect themselves
against eroding purchasing power," he said.
Barclays Capital raised its average oil price forecast for
2008 to $97.7 a barrel from $87.4 previously. Oil has averaged
around $93.66 so far this year, up from $72.30 in 2007.
Most commodities markets pushed higher on Wednesday with
gold hitting a new record high, and copper, aluminium and silver
also hovering near multi-year peaks, underscoring their
attraction to investors as a hedge against the dollar and an
alternative to other financial markets.
Oil has also lately been supported by growing winter fuel
demand in the United States and Europe amid falling
temperatures, and indications from OPEC that the exporter group
will not increase production at its meeting next week.
"I think OPEC will probably leave things as they are," said
Tom Nelson, analyst at Guinness Atkinson Funds.
On Tuesday, OPEC's president said members would agree not to
raise production, in part because of fears of a demand slowdown.
(Additional reporting by Luke Pachymuthu in Singapore and Jane
Merriman in London; Editing by James Jukwey)
