Oil prices staged a remarkable volte face on Wednesday and surged through the $110 level, while gold firmed as the dollar sank further against the euro.

Oil initially retreated after the latest US weekly inventories data provided further evidence of demand weakening. However, with the dollar sinking, the dip in oil prices was rapidly viewed as a buying opportunity.

Nymex April West Texas Intermediate recovered from a low of $107.07 and surged to a record $110.20 a barrel before easing back to settle $1.17 higher at $109.92.

ICE April Brent added $1.02 at $106.27 a barrel after hitting an all-time high of $106.39.

US crude stocks rose by a massive 6.2m barrels last week, well above the consensus forecast for a rise of 1.7m barrels, due partly to a rebound in imports.

Crude stocks at Cushing, Oklahoma, the delivery point for WTI rose to their highest level since early September after an increase of 2.8m barrels to 18.9m barrels. A rise in imports of 1.1m b/d to 10.55m b/d contributed to the rise in crude stocks. Meanwhile, there was clear evidence of consumption weakness, with total US product demand averaging 20.55m barrels a day over the past four weeks, down by 2.7 per cent compared to the same period a year ago.

US refineries are undergoing seasonal maintenance, but some may also be cutting back on crude consumption due to concerns over the outlook for US demand. Refinery utilisation fell 0.9 percentage points to 85 per cent.

US gasoline stocks rose to their highest level in 15 years with an increase of 1.7m barrels, also well above the consensus forecast for a rise of 0.3m barrels. Nymex April RBOB unleaded gasoline firmed 0.25 cents at $2.7286 a gallon.

Due to recent colder weather in the US, distillate stocks (including heating oil) fell 1.2m barrels, below the consensus forecast for a 1.9m barrel decrease. Nymex April heating oil hit a record above $3 a gallon for the first time, rising just under 3 cents to $3.0202. However, US heating oil stocks remain low, standing about 23 per cent below last year’s levels.

The global distillate market appears to be tightening. European refiners are following their north American counterparts in moving into seasonal maintenance programmes amid low levels of distillate stocks in storage in northwest Europe.

Before the inventories data, traders warned a price correction was possible as hedge funds had already extended their bets on price gains. The latest Commodity Futures Trading Commission data showed the speculative net long position has returned to almost 7 per cent of total open interest (combined total of long and short positions). Extended speculative positions have sometimes been followed by price corrections in the past.

But action in options markets indicates growing interest in hedging against oil prices moving higher.

“The mood on the market so far remains bullish and open interest in call options on the current April futures contract (which expires on March 14) has spilled over to $110, $120 and $150 a barrel strikes,” said Harry Tchilinguirian, a senior oil analyst at BNP Paribas. Open interest on $110 calls stood at 14,804 lots.

Gold firmed 0.8 per cent at $979.40 a troy ounce, helped by dollar weakness. Greg Wilkins, chief executive of Barrick Gold, is to succeed Pierre Lassonde as chairman of the World Gold Council with immediate effect.

In Chicago, wheat prices rose strongly on news of further robust export demand after Turkey announced plans to buy 500,000 tonnes of wheat next week with half expected to come from the US.

CBOT May wheat jumped 72 cents to $12.95 a bushel.

Following last years’ pasta strikes, Italy has sown 1.94m acres of soft wheat and 4.2m acres of durum wheat, increases of 17 and 21 per cent respectively over 2007. Prices of durum wheat used for making pasta doubled last year on concerns over tight global supplies.

CBOT May corn dipped 2½ cents to $5.70 a bushel while CBOT May soya­beans eased 1 cent to $14.06¾ a bushel. Argentina plans to introduce new sliding-scale taxes on grain exports as a means of protecting its domestic supplies.