Oil reflects dlr moves, not market dynamics -Yergin

By Jennifer Tan

SINGAPORE, Nov 16 (Reuters) - Current oil prices are the result of financial market gyrations and do not reflect the supply-demand dynamics of the physical market, energy consultant and prize-winning author Daniel Yergin said on Monday.

Crude oil benchmarks CLc1 are holding near $80 a barrel, having doubled from under $40 at the end of last year, after plunging during the financial crisis from all-time highs. But bulging inventories are keeping gains in check.

"Oil prices today do not reflect the world's supply and demand fundamentals. Instead, prices are reflective of the weak dollar and expectations of a strong economic recovery," Yergin told reporters on the sidelines of a conference.

On Monday, oil clawed back some of last week's 1.4 percent losses to above $77 a barrel, driven up by a weaker dollar and improved sentiment over the economic outlook. [O/R]

U.S. crude rose to its highest this year at $82 on Oct. 21 and rebounded nearly 73 percent so far this year, also helped by rallying equity markets. It turned positive on a rolling 12-month basis in the middle of last month for the first time since October 2008, raising the risk of commodity-led inflation.

"We're going to see this interplay between oil as a physical commodity and oil as a financial instrument," said Yergin who bagged the Pulitzer Prize for "The Prize: An Epic Quest for Oil, Money and Power", an 800-page history of the global oil industry.

But further upside for oil could be limited, with U.S. data pointing to a choppy recovery, and crude inventories standing near multi-year highs in the United States, the world's top energy consumer. [EIA/S]

Supply-demand fundamentals will direct the market at some point, Yergin said, a slight shift from his view in July when he said that such physical factors are beginning to reassert themselves again, after economic optimism pushed oil steadily higher in the first half of the year. [ID:nN09447194]