Crude oil surged to a record high of US$90.02 a barrel before dropping back to $89.28 on Friday, largely driven by a widening supply gap and further weakening of the US dollar.

Gold also hit a record high of US$776.9 per ounce on Friday after rising 4.1 percent over the past week.

The most actively traded crude oil futures contracts for delivery in November on the New York Mercantile Exchange surged 10 percent from last Wednesday to US$89.28 on Friday.

In Shanghai, the price of fuel oil futures contracts traded on the Shanghai Futures Exchange (SHFE) also climbed 2.8 percent over the past week. Prices of fuel oil futures for delivery in November on the SHFE rose 0.51 percent to close at 3,723 yuan per ton.

Analysts said supply and demand fundamentals are also lending support to the oil price rise. "When the market is confronted with tightened supply, investors become more vulnerable to worldwide economic and political uncertainties - like the geopolitical threats in the Middle East and the declining US dollar," said Lin Hui, an analyst at a futures company of Orient Securities.

Meanwhile, on the Shanghai Gold Exchange, the most actively traded gold product Au9995 closed at 185.44 yuan per gram on Friday, after surging 2.3 percent in the past week.

Wang Lixin, general manager of the World Gold Council Greater China, said uncertainties hanging over world economic growth triggered by the US subprime mortgage crisis have forced investors to seek refuge in gold.

"An increasing number of investors are buying gold to hedge against risks amid expected further devaluation of the US dollar," said Wang.

The US Federal Reserve's interest rate cut last month, which could drive down the value of the US dollar even further against other major currencies, is widely seen to have spurred investors to rush into commodity markets in anticipation of an upswing in energy and precious metal prices.

Expectation of continuous price rises has reportedly attracted sizable hedge fund investment in the oil and gold futures markets.

Analysts said the continuous drop in world oil inventories would drive oil prices to even higher levels in the next few months, especially with demand for heating oil increasing as winter approaches in the northern hemisphere.

Goldman Sachs predicts global oil inventories could reach critically low levels this year. Statistics compiled by the US investment bank show that the petroleum inventories of the Organization for Economic Cooperation and Development showed a draw of more than 27 million barrels in September.

This draw, combined with a 21-million barrel counter-seasonal stock draw in August reported by the International Energy Agency, indicates a third-quarter inventory draw of over 33 million barrels - a sharp contrast to the average 24 million barrels in the third quarter over the past 10 years.

Meanwhile, the monthly report released on Monday by the Organization of Petroleum Exporting Countries showed that daily world demand for crude oil averaged at 85 million barrels, up 1.52 percent from the same period last year.

(China Daily October 20, 2007)