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Oil Prices Close Above $132 Before Long Weekend

Reuters
Friday, 23 May 2008 | 3:18 PM ET

U.S. crude oil futures rose on Friday after seesawing before dealers bought defensively ahead of a long weekend and as the market eyed a weaker dollar and strikes affecting French port traffic.

Oil Pump
Oil Pump

On the New York Mercantile Exchange, July crude rose $1.38, or 1.05 percent, to settle at $132.19 per barrel, trading from $130.16 to $133.71. London Brent crude was also higher.

Crude futures reached a record $135.09 on Thursday.

Oil prices have climbed by around a third since the start of the year, driven upward by worries about supply from non-OPEC producers and the weakening dollar which prompted investors to use oil as a hedge against the falling currency.

The dollar looked set on Friday for its steepest weekly fallagainst a basket of major currencies in two months, as high oil prices left the U.S. economy vulnerable to slower growth and rising inflation.

Oil production from countries outside OPEC is stagnating and forecast to remain below 50 million barrels per day this year, at 49.56 million bpd, lower than earlier forecast, a Reuters survey of 12 analysts showed on Thursday.

"The severity of non-OPEC suppy weakness stands out as a primary factor behind the strong run-up in prices through the year so far," said Barclays Capital in a research note.

An unexpected fall in Russian oil production was one of the main factors prompting forecasters to revise downwards projections of non-OPEC supply, the bank said.

The failure of non-OPEC producers to increase output significantly has also sent long-term prices even higher, at close to $150 a barrel, as concerns mount that supplies will not be enough to meet demand from developing countries.

OPEC Secretary-General Abdullah al-Badri on Thursday repeated the group's stance that it can do nothing to lower oil prices in a "crazy" market, blaming record prices on factors such as geopolitical tensions, speculation and the weak dollar.

High oil prices may be set to dent demand as major Asian consuming countries review costly fuel subsidies that cushion drivers from higher costs.

Indonesia is to raise consumer fuel prices as the cost of its subsidies soars. India is also set to raise gasoline and diesel prices.

"In many ways you are starting to see a demand response," said Lawrence Eagles of the International Energy Agency.

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