Weaker dollar sends oil prices to record high above $114 a barrel as dollar tumbles

Light, sweet crude for May delivery rose as high as $114.53 a barrel in electronic trading on the New York Mercantile Exchange before retreating to $113.74 by the afternoon in Europe, down 5 cents.

The contract closed at a record $113.79 a barrel Tuesday and then jumped in after-hours trading to an all-time high of $114.08.

In London, June Brent crude contracts were down 6 cents to $111.52 a barrel on the ICE Futures exchange, after setting a new record of $112.35 earlier in the session.

Analysts said the oil increases were being caused by record lows for the dollar _ $1.5966 per euro _ as higher inflation in the euro zone practically eliminated the chances of an interest-rate cut by the European Central Bank.

Annual inflation in euro nations rose to a record 3.6 percent in March, boosted by higher prices in transport fuel, heating, dairy products and bread, said Eurostat, the EU's statistical agency. It is the highest inflation rate in 16 years.

Olivier Jakob of Petromatrix in Switzerland said there had been a "very strong correlation" between rising oil prices and the weakening dollar in the last few months, which appeared to have been broken at the start of this week.

"Monday and Tuesday crude oil managed to move ahead without the help of the dollar," Jakob said. "But once we broke above 1.59 euros per dollar and as we move toward 1.60, there's going to be more buying coming into oil."

Analysts said growing investor demand for commodities _ which have performed better than other financial instruments _ also propped up prices.

"This is really driven by investors purchasing oil because returns have simply outpaced those of stocks and bonds," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Shum said he didn't think supply and demand fundamentals were that strong, but added that "oil's price rise seems unstoppable."

Oil's recent run above $100 a barrel has been largely attributed to speculators, as a steadily depreciating U.S. currency drives investments in hard commodities such as oil and gold.

Traders were awaiting the release of U.S. data Wednesday on the state of America's petroleum supplies. Last week's EIA report showed an unexpected drop in crude inventories, which started oil on its way to several records.

The U.S. Energy Information Administration was expected to report that crude inventories grew 1.5 million barrels last week, according to a survey of analysts by Platts, the energy research arm of McGraw-Hill Cos.

Gasoline inventories were expected to decline 2 million barrels, to post their fifth consecutive weekly drop amid increasing demand for the fuel, the survey showed.

"Implied gasoline demand typically starts to increase at this time of year, but high prices at the pump and a slowing U.S. economy appear to have dented the pace of demand growth," the Platts report said.

Analysts also projected a 1.7 million barrel drop in distillate stocks, which include heating oil and diesel, while refinery utilization rates were expected to jump 0.9 percentage points to 83.9 percent.

"The market may choose to focus on the expected product drawdowns and interpret the report as bullish," Shum said. "But product inventories in the U.S. are at healthy levels. The declines would simply be because refinery utilization operating rates have not been strong, and that's because refiners are responding to weak demand."

Crude prices were also supported by reports of a number of supply disruptions.

Attracting the most attention was the closure of Mexico's three main oil-exporting ports on the Gulf Coast because of bad weather that started Sunday. Only one of the ports remained closed Tuesday, according to Mexico's Communications and Transportation Department.

In other Nymex trading, heating oil futures added 3.11 cents to $3.3050 a gallon while gasoline prices rose 0.25 cent to $2.8835 a gallon. Natural gas futures were up 0.5 cent to $10.210 per 1,000 cubic feet.

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Associated Press writer Gillian Wong in Singapore and Aoife White in Brussels, Belgium, contributed to this report.

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