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Oil hits record near $140 a barrel

By John Wilen ASSOCIATED PRESS | Monday, June 16, 2008

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NEW YORK (AP) – Crude oil futures hit a record near $140 a barrel Monday as investors shrugged off Saudi Arabia's promise to boost production and instead focused on a weaker dollar. Retail gas prices rose to a record $4.08 a gallon.

Light, sweet crude for July delivery soared to a trading record of $139.89 before retreating to trade up $2.39 at $137.25 a barrel on the New York Mercantile Exchange.

Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar's protracted decline is a major factor behind oil's doubling in price over the past year.

In afternoon European trading, the euro bought $1.5470, up from $1.5354 late Friday in New York.

Also supporting prices was an overnight fire at a StatoilHydro ASA drilling rig in the North Sea, which could affect as much as 150,000 barrels of daily oil production, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.

But prices of North Sea-produced Brent crude oil, while higher, were lagging Nymex crude's advance, suggesting to analysts that the dollar was the main driver of Monday's rally. In London, August Brent crude futures rose $2.01 to $137.12 a barrel.

"We have a weaker U.S. dollar, and the buyers are out in force right now," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

Saudi Arabia, the world's largest oil producer, told U.N. chief Ban Ki-moon over the weekend that it would boost output by 200,000 barrels a day, or by 2 percent, from June to July. In May, the kingdom raised production by 300,000 barrels a day.

The latest promise of a production increase by the kingdom was largely ignored by traders Monday amid strong global demand and falling production elsewhere.

"Saudi Arabia's proposed output addition will only go some way in offsetting the significant output losses in other OPEC nations like Nigeria," said Barclays Capital analyst Kevin Norrish in a research note.