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Fri 19 Oct 2007 01:10 PM

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Oil price touches $90 per barrel in early trading

Hedge funds continue to buy oil as winter shortages put upward pressure on price.

Oil hit an all-time high of $90.02 in early trade on Friday, but later eased to just below the $90 level.

Oil's rally - which has seen six straight days of record highs for U.S. crude -- has been fuelled by unprecedented weakness in the U.S. dollar, a factor that has supported all dollar-denominated commodities.

The greenback fell to a new record low against the euro on Friday, knocked by sentiment that weak U.S. economic and financial market indicators may force another interest rate cut.

"The dollar weakened further, spurring some investment into oil as a hedge against dollar weakness," said David Moore, commodity strategist from the Commonwealth Bank of Australia.

"And there are still concerns that oil market conditions will remain tight over the northern winter."

Oil has averaged just over $67 a barrel this year, but is climbing towards the inflation-adjusted high of $101.70 hit in April 1980, a year after the Iranian revolution.

The price run-up has concerned OPEC, which may call for an early formal meeting to discuss a further output increase. An OPEC supply rise of 500,000 barrels per day (bpd), agreed last month, will take effect on Nov. 1.

Although stocks of fuel in top consumer the United States rose last week, crude inventories stand about 4 percent below a year ago, while gasoline and distillate stocks are about 7 percent below last year.

Rising political tension between Turkey and Kurdish rebels in northern Iraq has also supported gains, as traders worry about a disruption in flows of Iraq's northern oil exports.

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