Oil Rises to Record on Weakening Dollar, Morgan Stanley Outlook

June 6 (Bloomberg) -- Crude oil more than $7 rose to a record as the dollar weakened after the U.S. unemployment rate grew the most in two decades and Morgan Stanley said prices may reach $150 within a month.

Oil may ``spike'' because ``Asia is taking an unprecedented share'' of Middle East exports, Morgan Stanley analyst Ole Slorer wrote. The dollar weakened against the euro after the unemployment rose to 5.5 percent, signaling the Federal Reserve may be reluctant to increase interest rates. Oil also rose after an Israeli minister said an attack on Iran may be necessary.

Oil is ``being used as a hedge by speculative buyers for the weakened dollar,'' said Gary Adams, vice chairman of oil and gas consulting at Deloitte & Touche LLP in Houston. `We are seeing that the price will continue to go up as investors look for alternatives.''

Crude oil for July delivery rose $7.58, or 5.9 percent, to $135.37 a barrel at 1:07 p.m. on the New York Mercantile Exchange after touching a record $135.60. Oil yesterday advanced $5.49, or 4.5 percent, to $127.79 a barrel.

If oil settles at the current price it would be the biggest two-day gain in percentage terms since December 2001, and the biggest dollar gain since trading began in 1983.

Shaul Mofaz, Israel's transportation minister and a contender for the post of prime minister, told the Yediot Ahronot daily newspaper that Israel will have to attack Iran if it doesn't abandon its nuclear-development program.

``The Iranian risk premium which had left the market for some time is likely to return and hover over the market in the next few weeks,'' said Antoine Halff, head of energy research at Newedge USA LLC in New York. ``The knee jerk reaction to the comments by Mofaz will wear off quickly because Israel would not broadcast its intention in this fashion.''

Brent Oil

Brent crude oil for July settlement rose $6.31, or 5 percent, to $133.85 a barrel on London's ICE Futures Europe exchange. Prices reached a record $135.14 on May 22.

The dollar weakened against the Euro today after the Labor Department said U.S. payrolls fell by 49,000 after a 28,000 drop in April. The jobless rate increased by half a point to 5.5 percent, the biggest increase since 1986 and higher than every forecast in a Bloomberg News survey.

The dollar decreased 0.9 percent to $1.5728 per euro at 12:08 p.m. in New York, from $1.5593 yesterday.

Unemployment Increase

Rising unemployment ``is going to lead to a drop in the dollar and higher commodity prices,'' said Phil Flynn, a commodities trader for Chicago-based Alaron Trading. The Fed will be ``less aggressive in raising interest rates.''

The dollar fell against the euro yesterday after European Central Bank President Jean-Claude Trichet said the bank may raise rates next month.

Oil has risen to records this year partly because investors have turned to commodities as a hedge against the weakening dollar.

Current shipping patterns suggested that U.S. benchmark West Texas Intermediate crude oil may reach $150 a barrel by July 4, Morgan Stanley's Slorer said in his report.

BNP Paribas SA, France's biggest bank, boosted its 2008 oil outlook by 19 percent to $124 on climbing Asian demand for diesel fuel and kerosene to generate electricity and run buses and trucks.

The market ``is underpinned by demand, which is totally different than 1973 and 1979'' when supply cuts caused prices to surge, said Ray Carbone, president of Paramount Options Inc. in New York. Oil's rise is linked to ``supply and demand. Nobody wants to admit it, too bad.''

Chevron in Nigeria

Workers at Chevron Corp. in Nigeria may strike, a union official said. Chevron has yet to respond to worker demands that the head of the Nigerian unit be replaced, said Ethelbert Uka, treasurer of the Petroleum and Natural Gas Senior Staff Association of Nigeria. Daily production of about 450,000 barrels of crude oil may be threatened, the Lagos-based newspaper Vanguard reported earlier.

Rising oil prices prompted Congress to hold hearings this week on possible energy price manipulation. Congressional leaders are pushing the Commodity Futures Trading Commission, the futures-market regulator, and other agencies to step up efforts to oversee the markets as gasoline as pump prices touch records.

Billionaire investor George Soros told Congress an oil price ``bubble'' is working with fundamentals in the market that may lead to a recession in the world's largest economy.