Global stocks slumped to three-month lows on concerns about the outlook for corporate profits and inflation, putting the Dow Jones industrial average on the verge of entering a bear market for the first time since 2001. "The renewed attraction of commodities as an investment vehicle is contrasting with the unattractiveness of the stock market," analysts Ritterbusch and Associates said in a research note. "As additional traders abandon the stock market, the appeal of commodities as a trading vehicle is enhanced."
Oil prices have jumped more than 45 percent this year, extending a six-year rally, as supply struggles to keep pace with rising demand from emerging economies, such as China and India. Additional support has come from a flood of cash from new investors buying up commodities to hedge against inflation and the weak US dollar, which fell further on Friday.
Gold hit a one-month record high, while US corn futures jumped to a fresh record. Rising fuel costs have stirred protests around the globe, prompting some US politicians to call for a reduction in the amount of speculation allowed in the oil market.
The US House of Representatives on Thursday approved legislation that directs the Commodity Futures Trading Commission to use all its authority to curb speculation in energy futures markets.
Oil rose more than $5 on Thursday after Libya said it was studying possible options to cut output in response to potential US actions against members of the Organisation of Petroleum Exporting Countries.
Some experts insist supply and demand are behind oil's record rise, while others, including Opec, say rising flows of speculative cash are behind this year's gains.
"We believe the factors driving oil prices higher are fundamental and not speculative," Deutsche Bank said in a research note. "Oil needs to rise to $150 a barrel for oil as a share of global GDP to reach the levels that occurred in the early 1980s." "At that point, we will start to see more signs of demand destruction and an eventual tipping point in oil markets."
An oil price poll by Reuters showed analysts' expectations that oil will rise for the foreseeable future. The poll showed US crude in 2008 would average $113.24 a barrel, up by about $6 from the last poll in May.