March 13 (Bloomberg) -- Natural gas advanced after a government report showed U.S. supplies declined last week more than forecast and crude oil surged to $111 a barrel.

Supplies fell 86 billion cubic feet, 6 billion more than the average change for the same week over the last five years, according to Energy Department data. Analysts had estimated a withdrawal of 85 billion cubic feet. Oil climbed as the dollar declined to a record low against the euro.

``People are focused more on the upside than the downside, there's nothing to suggest that any of this should go any lower,'' said Michael Dane, an analyst at SunTrust Robinson Humphrey in Houston. ``With prices at this level, it suggests to us there's a lack of other financial opportunities.''

Gas for April delivery rose 21.9 cents, or 2.2 percent, to settle at $10.23 per million British thermal units at 3:11 p.m. on the New York Mercantile Exchange. It is the highest close since $10.626 per million Btu on Jan. 3, 2006.

Crude oil for April delivery rose 41 cents, or 0.4 percent, to settle at $110.33 a barrel in New York, the highest since trading began in 1983. Futures earlier rose to $111 a barrel.

Oil surged as the sinking value of the dollar attracted investors to commodity markets. The U.S. currency fell against a basket of six major trading partners to the lowest since the index began in 1973. The Dollar Index traded on ICE Futures in New York declined as low as 71.82.

``Idiocy! Prices are completely independent from the traditional fundamentals,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``This is a pure speculation play.''

As long as the U.S. dollar is weak, traders will pile into energy commodities, Cooper said.

Stronger Than Stocks

Gas and crude price increases have outpaced stocks in the past year. Crude has risen 90 percent in the past year and natural gas 48 percent. The Standard & Poor's 500 Index and Dow Jones Industrial averages have declined.

Investments in commodity hedge funds rose to $104 billion at the end of 2007 from $73 billion in the first seven months of last year, according to data from Singapore-based research company Eurekahedge.

Gas prices may hover near $10 per million Btu into next month as the influence of a weak dollar and a ``fragile'' supply picture ripple through the energy sector, said Michael Haigh, senior commodity strategist for Societe Generale in New York.

Gas traders will be looking at how rapidly inventories are rebuilt during the spring and summer for use later in the year when demand typically increases, said Haigh.

``March is going to be a ridiculously low month for LNG'' imports at a time when they usually start to rise, said Haigh. ``It's all about supply right now.''

LNG Imports

Imports of liquefied natural gas this year may be less than the 2.1 billion cubic feet a day moved in 2007. Analysts credit 2007 imports with helping boost gas stockpiles to a record 3.545 trillion cubic feet when winter demand began last November.

Should imports of LNG, which is natural gas that has been cooled to a liquid state so that it can moved by tankers to markets not connected by pipelines, be less than anticipated, large consumers may be unable to fully replenish supplies for their needs next winter. Shipments to the U.S. are currently about 50 percent below those of a year ago.

Cargoes that might have headed to the U.S. are being drawn to Spain, where a drought has cut hydroelectricity output, and Asia where demand remains robust, said Haigh.

Spanish utilities' imports of LNG rose to a record in February as companies increased output from gas-fired plants, according to gas-network operator Enagas SA on March 5. Power plants that burn gas were Spain's main source of electricity last month, doubling their production to 37 percent of total demand.

Gas stockpiles fell to 1.398 trillion cubic feet in the week ended March 7, 57 billion cubic feet higher than the average 1.341 trillion over the past five years, the department said.

Supplies may end the heating season near 1.3 trillion cubic feet, Dane said. Inventories have averaged about 1.25 trillion cubic feet at the end of March over the past five years, according to department data.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.

Last Updated: March 13, 2008 15:26 EDT