WORLD oil prices soared to new highs near $US112 overnight as the US currency slumped to a fresh low against the euro, sparking a rush of funds into dollar-priced commodities, traders said.
New York's main oil contract, light sweet crude for delivery in April, hit a record high $US111.80 in early trade before profit-taking set in.
It later stood at $US107.86, down $US2.35 from Saturday's close.
Elsewhere overnight, Brent North Sea crude for May delivery fell $US2.72 to $US103.48 per barrel.
Prices hit key record levels last week, with New York crude touching 111 dollars per barrel for the first time, as investment demand was also driven by the tumbling dollar.
In addition, world financial markets were rocked by news of the collapse and sale of Bear Stearns, which was the fifth largest investment bank in the United States.
An emergency rate cut by the US Federal Reserve, made in a rare Monday announcement, only added to the sense of crisis, analysts said.
"Crude futures hit record highs near $US112 per barrel (overnight) as the dollar continued to tumble, following the surprise cut in the US Federal Reserve discount rates and following news that Bear Stearns was sold for $US2 a share," said Sucden analyst Nimit Khamar.
In the wake of the news, the European single currency soared to a record high point of $US1.5905 in Asian trade overnight.
In turn, that helped gold prices to new heights above $US1032 per ounce in London.
The dwindling value of the US currency encourages demand for dollar-priced oil because it becomes cheaper for buyers using stronger currencies, while investors also seek to guard against risks to higher inflation.
"The depreciating dollar has meant market participants are looking to US dollar denominated commodities to hedge against inflation and their forex exposure, which has seen their other assets being devalued in real money terms," Mr Khamar said.
"Currently, crude buying amid the weakening dollar remains the key influence and should continue to dictate the movement in the oil markets for the moment, but it remains to be seen how long participants can ignore the deteriorating state of the US economy."
In the near-term, dealers said, oil prices are likely to trend higher with no relief seen for the US currency as investors worry about the US financial system following the woes of investment bank Bear Stearns.
"We can continue to expect strong prices for oil and commodities like gold in the near term," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore
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