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SINGAPORE — Oil prices hovered above $71 a barrel in Asia Friday amid concerns that massive U.S. fiscal spending will spark inflation down the road, making oil and other commodities attractive hedges.
Benchmark crude for July delivery rose 10 cents to $71.47 a barrel by midday Singapore time in electronic trading on the New York Mercantile Exchange. On Thursday, it rose 34 cents to settle at $71.37.
Oil has lingered above $70 a barrel this week, near eight-month highs, on investor optimism the global economy is stabilizing from a severe slowdown. Traders are also buying crude, whose price has doubled since March, and other commodities as protection against possible inflation and a weaker dollar.
"As an inflation hedge, oil is very popular right now," said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. "The theme of the market is the inflation scare, and it's getting more pronounced. Crude is seen as a safe bet in this environment."
So far, inflation rates have remained low, with some countries slipping into deflation amid deep recessions. But analysts worry that government stimulus spending, especially in the U.S., and rising commodity prices could push prices higher by the end of the year.
Robert Prior-Wandesforde, senior Asia economist for HSBC in Singapore, said in a report that he expects the inflation rate in Asia excluding Japan and China to bottom at 3 percent in September and then riseto 5 percent by year-end and 6.5 percent by mid-2010.
"A strong rise in both food and energy price inflation will push the headline rate higher," he said. "It is by no means clear that markets or policy makers are prepared for this kind of rapid reversal in inflation."
In other Nymex trading, gasoline for July delivery fell 1.09 cents to $2.02 a gallon and heating oil was steady at $1.84. Natural gas for July delivery dropped 1.2 cents to $4.08 per 1,000 cubic feet.
In London, Brent prices rose 20 cents to $71.26 a barrel on the ICE Futures exchange.
