As it was the case previously, this is due to the weakness of the US Dollar and to supply concerns of OPEC members (this time, it is Iran and Nigeria).
Oil prices first reached $100 early this January, then $110 in March. I seriously wonder at which levels oil prices will finally stop. If they stop at all.
As the Financial Times states it :
Oil jumped more than $3 to strike a record over $120 a barrel on Monday on the weaker dollar and supply concerns from Opec members Nigeria and Iran.
US crude gained $3.37 to trade at $119.69 by late morning after surging to $120.21 earlier. London Brent crude rose $3.33 to $117.89 in light trade due to a bank holiday in Britain.
”People are piling back up on crude oil due to the weakness of the dollar and production issues in Nigeria,” said Phil Flynn, analyst at Alaron Trading in Chicago. ”But it also looks like momentum play, after Friday’s positive reaction to the unemployment report.”
US government data issued on Friday showed that US payrolls fell by 20,000 jobs in March, a quarter of the losses expected. This helped to counter concerns that the weaker US economy could drag down oil demand.
The dollar fell broadly on Monday, however, as forex investors decided the world’s biggest economy was still struggling. A Monday report from the Institute for Supply Management that showed the US service sector grew unexpectedly in April.
Further support for oil came from Iran’s announcement on Monday that it would not consider incentives offered by world powers that would constrain its right to nuclear technology.
The comments come only three days after major powers said they would make a new offer to convince the Islamic republic to halt its nuclear plans, a process which the West believes Tehran wants to master so that it can build nuclear weapons.
Iran’s standoff with the West over its nuclear program added geopolitical concerns and fundamental tightness last year that sent crude to new highs.
Crude has continued to surge since then, extending a six-year rally that has sent prices up five-fold to near $120 a barrel last month on a wave of investment by speculators seeking to hedge against inflation and the weak dollar.
Additional supply worries came from Nigeria, where Royal Dutch Shell was forced to shut more of its production after militants on Saturday attacked a flowstation in the oil-rich Niger Delta.
Renewed clashes between Turkey and Kurdish rebels in northern Iraq also lent support to oil prices.
The Turkish army said on Saturday it killed more than 150 Kurdish PKK fighters in air strikes in northern Iraq last week, but the rebel group denied this and security forces in the region also expressed scepticism.
(Thanks to Sherlock for choosing the photo.)
Edit : If you want to reduce your oil consumption while driving, here are ten great tips provided by the Daily Green.