By Dan Strumpf
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Oil futures settled at their highest level in 2 1/2 years Thursday as the dollar weakened and Libyan rebels suffered a setback, raising fears that the conflict could be prolonged.
Gasoline and heating oil futures also surged to their highest levels in more than two years.
Light, sweet crude for May delivery settled up $2.45, or 2.4%, at $106.72 a barrel on the New York Mercantile Exchange, marking the contract's highest settlement since September 2008.
Brent crude on the ICE futures exchange settled up $2.23, or 1.9%, to $117.36, the highest since August 2008.
Traders focused on a steep drop in the dollar versus the euro Thursday, which spurred buying of hard assets like commodities. The euro was lifted by predictions that the European Central Bank will lift interest rates next week, in line with its aggressive posture against inflation.
"There's the overall sense that the dollar is overvalued, that there's still too many dollars in the system," said Darin Newsom, senior commodities analyst at Telvent DTN. "We've got strong money coming back into commodities as a whole."
A weaker dollar tends to boost the price of oil as the dollar-denominated commodity becomes cheaper in other currencies and investors look to hard assets as a hedge against inflation. The ICE Dollar Index, which tracks the greenback against a basket of currencies, was recently down 0.3% at 75.850.
Trading volume was muted Thursday, the last day of the quarter. Crude prices have enjoyed a brisk rally during the last three months. Nymex crude is up 16.7% this year, as popular movements across the Arab world have raised worries of supply disruptions.
Those worries have taken center stage in Libya, where some 1.3 million barrels of oil exports a day have been shuttered due to a rebel uprising and Western sanctions. Rebels suffered a setback Wednesday, when forces loyal to Col. Moammar Gadhafi's forces reportedly overran the eastern oil town of Ras Lanuf, a key rebel stronghold.
In the nearby town of Brega, also a rebel stronghold, Gadhafi forces were shelling rebels, AFP reported. The setbacks have spurred worries that an end to the conflict and the return of Libyan oil to the market remain far off.
"We're back to where we started," Rich Ilczyszyn, broker at Lind-Waldock, said of the rebels' progress. "It's no accident the oil starts to trade up on that."
Gasoline and heating oil futures also touched highs. Gasoline demand is set to rise in the coming months with the start of the summer driving season.
Front-month April reformulated gasoline blendstock, or RBOB, rose 4.36 cents, or 1.4%, to settle at $3.1076 a gallon, the highest settlement since July 2008. April heating oil advanced 5.02 cents, or 1.7%, to $3.0898 a gallon, the highest since August 2008. Both contracts expired Thursday.
More information on settlements and highs and lows for futures on Nymex and ICE platforms can be found by searching for the following headlines:
Nymex Light Crude Oil Close
Nymex Harbor RBOB Gasoline Close
Nymex Heating Oil Close
ICE Brent Crude Oil Close
ICE Gas Oil Close
-By Dan Strumpf, Dow Jones Newswires; 212-416-2818; dan.strumpf@dowjones.com
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