By John Wilen, AP
NEW YORK — Oil rose above US$126 a barrel for the first time Friday, bringing its advance this week to nearly US$10, as investors questioned whether a possible confrontation between the U.S. and Venezuela could cut exports from the OPEC member.
On Friday, The Wall Street Journal published a report that suggested closer ties between Venezuelan President Hugo Chavez and rebels attempting to overthrow Colombia’s government. Chavez has been linked to Colombian rebels previously, but the paper reported it had reviewed computer files indicating concrete offers by Venezuela’s leader to arm guerillas. That appears to heighten the chances that the U.S. could impose sanctions on one of its biggest oil suppliers.
“If we put on sanctions, I’m sure Chavez would threaten to cut off our oil supply,” said Phil Flynn, an analyst at Alaron Trading Corp. “Obviously that would have a major impact on oil prices.”
Light, sweet crude for June delivery vaulted to a new record of US$126.20 in morning trading on the New York Mercantile Exchange before retreating to trade up US$1.09 at US$124.78 a barrel. In London, June Brent crude futures rose US$1.79 to US$124.63 a barrel on the ICE Futures Exchange.
Even if Chavez cut oil shipments to the U.S., Venezuelan oil would still make its way to the U.S. via middle men, who would buy it from Venezuela and resell it to the U.S., Flynn said. But that new layer in the supply chain would bump up costs.
Oil prices also were boosted Friday by the dollar, which declined against the euro. The European Central Bank said it was unlikely to consider interest rate cuts to cool the strong euro against the slumping dollar. Investors often buy commodities such as oil as a hedge against inflation when the greenback falls. A weaker dollar also makes oil less expensive to overseas investors.