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Oil Rises as Dollar Falls to 15-Month Low, U.S. Demand Climbs

Crude oil rose as the dollar dropped to a 15-month low against the euro and a government report showed that U.S. fuel demand gained for a second week.

Oil increased 2.6 percent after the greenback retreated on the Federal Reserve’s signal that it will tolerate a weaker currency. A lower dollar bolsters the appeal of commodities as an alternative investment. Consumption of gasoline and other fuels climbed 2.8 percent in the past two weeks, an Energy Department report showed.

“The primary reason for higher oil prices is the falling dollar,” said Michael Fitzpatrick, vice president of energy with MF Global in New York. “There were no big surprises in today’s inventory report.”

Crude oil for January delivery rose $1.94 to $77.96 a barrel on the New York Mercantile Exchange, the highest settlement since Nov. 18. Prices are up 75 percent this year.

There will be no floor trading in New York tomorrow because of the U.S. Thanksgiving holiday, and the exchange will close early on Nov. 27.

“Due to the holiday, I won’t attach a lot of importance to any directional moves until we come in next Monday,” Fitzpatrick said.

The Federal Open Market Committee called the dollar’s depreciation “orderly” in minutes of its November meeting released yesterday. The U.S. currency traded at $1.5153 against the euro, the weakest level since Aug. 8, 2008.

Other raw materials rose because of the dollar’s drop. Gold futures for February delivery climbed $21.20, or 1.8 percent, to end the session at a record $1,188.60 an ounce on the Comex division of Nymex. The Reuters/Jefferies CRB Index of 19 commodities advanced 2.3 percent to 278.43, the highest level since Oct. 23.

Jobless Claims

Prices also advanced after the number of Americans filing claims for unemployment benefits fell last week to the lowest level since September 2008, a signal that the economy of the world’s biggest-energy consuming country is recovering.

“The continuing descent of the dollar is buoying crude,” said John Kilduff, partner at Round Earth Capital, a New York- based hedge fund that focuses on food and energy-commodity investments. “The market lagged earlier today because of the durable goods number. As the dollar breaks down, we can ignore cloudy economic numbers.”

The Commerce Department reported today that U.S. orders for durable goods unexpectedly declined last month. The 0.6 percent decrease in bookings followed a revised 2 percent gain in September. Economists forecast durable-goods orders would increase 0.5 percent, according to a Bloomberg News survey.

‘Inflated’ Prices

Oil prices will “remain inflated because of reasons other than the supply-demand fundamentals,” Fadel Gheit, managing director of oil and gas research at Oppenheimer & Co. Inc. in New York, said today on Bloomberg Television. “There’s no shortage of oil, there’s oversupply, and the economy is still sputtering.”

Stockpiles of crude oil increased 1.02 million barrels to 337.8 million in the week ended Nov. 20, according to the Energy Department. A 1.5 million-barrel increase was forecast, according to the median of 16 estimates by analysts in a Bloomberg News survey.

A drop in oil supplies on the U.S. West Coast was responsible for the smaller-than-forecast size of the nationwide increase, the Energy Department report showed. Stockpiles there tumbled 3.03 million barrels to 54.1 million. The region’s distribution system is isolated from the rest of the country.

Inventories along the Gulf Coast rose 2.88 million barrels to 171.1 million. Supplies in the region, home to about 50 percent of the nation’s refining capacity, declined 6.2 million barrels in the week ended Nov. 13, as Hurricane Ida shut ports.

‘Choice of Targets’

“You really have a choice of targets in this week’s report,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “If you are a bull you can look at the demand number, while a bear would focus on the inventory gain.”

Gasoline inventories climbed 1 million barrels to 210.1 million last week, the report showed. A 300,000-barrel gain was forecast. Supplies of distillate fuel, a category that includes heating oil and diesel, dropped 529,000 barrels to 166.9 million. Analysts were split over whether inventories of the fuels would rise or fall.

JPMorgan Chase & Co. raised its forecast for New York crude in the first quarter of next year to $70 a barrel from $65, as it expects Saudi Arabia, the world’s largest supplier, to secure its target price. The desert kingdom’s King Abdullah has targeted $75 as a fair price for consumers and producers.

Driving Seat

“Saudi Arabia is currently in the driving seat and wants a $68-to-$73-a-barrel range,” Lawrence Eagles, head of commodities research at JPMorgan, said in the report. “On the demand side, Chinese apparent demand seems to be ramping up.”

Brent crude oil for January delivery on the London-based ICE Futures Europe exchange rose $1.98, or 2.6 percent, to settle at $78.44 a barrel.

Oil volume in electronic trading on the Nymex was 562,363 contracts as of 2:54 p.m. in New York. Volume totaled 715,436 contracts yesterday, 27 percent above the average of the past three months. Open interest was 1.18 million contracts.

Source: Bloomberg.com