Crude oil prices surged further into record terrain Thursday, closing above $83 per barrel as the weak dollar and some worrisome weather in the Gulf of Mexico spurred buying.
The weather system, which forecasters said might develop into a tropical depression, caused the temporary closure of about a quarter of the Gulf of Mexico's daily oil production on Thursday as a precaution.
That lent an extra boost to the oil market's already strong record-breaking run, because traders view U.S. crude inventories as tight. Last week, crude inventories declined.
But the real drive behind the rally, many analysts said, is an influx of speculative "nontraditional" capital into energy commodities. And that inflow increases when the dollar falls.
Addison Armstrong, an analyst with TFS Energy Futures, wrote in a research note that oil is rising due to weakness in the dollar. On Thursday, the dollar fell to yet another record low against the euro, and dropped to the same value as the Canadian dollar for the first time since November 1976.
A weak dollar supports oil prices by making futures cheaper for foreign investors, noted Antoine Halff, head of energy research at Fimat USA.
It also prompts buying by domestic investors, who sense that demand for Nymex oil is rising overseas, said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Ill.
So for the fourth straight session, oil prices on the New York Mercantile Exchange hit a record.
U.S. light, sweet crude for October delivery gained $1.39 to finish at $83.32 per barrel, after rising as high as $83.90 in intraday trading.
The October oil contract expired Thursday, and trading in expiring contracts is often volatile as traders move to square positions. Indeed, oil futures gyrated between gains and losses before surging in the afternoon above the $83 per barrel mark.
London Brent crude rose 62 cents to settle at $79.09 per barrel on London's ICE Futures exchange.
Heating oil futures rose 1.56 cent to settle at $2.2609 per gallon.
But natural gas fell 17.2 cents to settle at $6.008 per 1,000 cubic feet after the government reported that inventories grew by 63 billion cubic feet last week, only slightly below consensus analyst expectations.
Natural gas prices have not been affected by National Hurricane Center forecasts that a tropical depression or storm could soon form in the Gulf.
"Investors seem to be more focused on the big storms that form out in the open Atlantic," Ritterbusch said.
The federal Minerals Management Service said that personnel had been evacuated from five of the 834 staffed production platforms in the Gulf, and three of the 89 drilling rigs had been evacuated.
But the evacuations are likely temporary, given that oil and gas platforms are built to withstand smaller storms -- even of tropical strength, analysts say.
Several oil and gas companies have evacuated nonessential personnel from Gulf installations in recent days as a precaution. But Ritterbusch said such moves are routine this time of year.
"They really don't lose a significant amount of production when they do this," he said.
At the pump, meanwhile, gas prices are still not reacting much to record oil prices. Overnight, the average national price of a gallon of gas rose 0.1 cent to $2.791, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the gasoline futures market, peaked at $3.227 a gallon in late May.
While oil inventories fell last week, supporting prices, refinery activity fell and gasoline inventories grew. Many analysts believe gasoline prices are well past their peak for the year. Despite falling inventories, demand is also falling now that peak summer driving season has ended, analysts say.
Oil's rise in recent sessions has many analysts scratching their heads.
"We believe that global demand is significantly weaker than current record high prices would suggest," Ritterbusch said. "I'm just having an incredibly difficult time coming up with fundamental arguments to support these prices."
But the weak dollar and speculative investors could continue to send oil prices to new records for some time to come, analysts say.