Bloomberg: Oil Surges Above $99 as Weaker Dollar Spurs Commodity Demand

By Christian Schmollinger

Nov. 21 (Bloomberg) — Crude oil rose above $99 a barrel for the first time as a slumping U.S. dollar increased demand for commodities at a time of declining heating oil inventories.

Futures in New York rose to within 71 cents of $100 as the dollar fell on speculation that the Federal Reserve will cut interest rates for a third time this year. U.S. distillate fuel supply probably fell for a second week, according to a Bloomberg survey.

“Reaching $100 oil will be a major psychological barrier,” said Gavin Wendt, senior resources analyst with Fat Prophets in Sydney. “Every week we draw inexorably closer to the winter heating season.”

Crude oil for January delivery climbed as much as $1.26, or 1.3 percent, to a record $99.29 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The contract was at $98.93 at 3:46 p.m. in Singapore.

The contract climbed $3.39, or 3.6 percent, to $98.03 a barrel yesterday, the highest close since trading began in 1983.

“Nobody wants to sell,” said Tom Hartmann, commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. Oil has “its own bullish factors but on top of that, with the weaker dollar, prices kind of have to go up,” he said.

Brent crude oil for January settlement gained as much as $1.04, or 1.1 percent, to $96.53 a barrel on the London-based ICE Futures Europe exchange, the highest since trading started in 1988. It was at $98.93 at 3:27 p.m. Singapore time.

Dollar, Heating Oil

The dollar fell to $1.4856 per euro today, the weakest since the single European currency’s debut in 1999. U.S. Federal Reserve policy makers yesterday lowered their growth forecast for 2008 on concern that the housing slump and credit market losses risked slowing growth in the world’s biggest economy.

“The financial pundits all interpreted that to mean the Fed might cut interest rates again in December and that would further weaken the dollar,” said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. “Oil has become a hedge for investors and the weaker U.S. dollar has contributed to the rise in gold and oil”

West Texas Intermediate, the New York-traded crude-oil benchmark, is up 61 percent this year. Oil has gained 43 percent in euros, 53 percent in British pounds and 49 percent in yen.

“If the U.S. cuts interest rates, then more money will flow into the oil market,” said Tetsu Emori, fund manager with Astmax Futures Ltd. in Tokyo. “People will buy U.S. dollars and buy into the energy markets.”

Fuel Inventories

Crude also gained as distillate fuel prices surged to a record the day before an Energy Department report that may indicate supplies declined last week. Oil demand typically peaks in the fourth quarter during the Northern Hemisphere winter.

Distillate-fuel stockpiles, which include heating oil and diesel, probably dropped 450,000 barrels, according to the median of 16 analyst estimates in a Bloomberg News survey. The futures also rose as forecasters said most of the U.S. will experience below-normal temperatures over the next two weeks.

U.S. retail unleaded gasoline prices have climbed above $3 a gallon, reaching as high as $3.11 on Nov. 14, a level not seen since June. About 38.7 million people will travel more than 50 miles for the Thanksgiving holiday tomorrow, according to the American Automobile Association, more than the previous mark of 38.1 million last year.

Heating oil for December delivery rose as much as 2.09 cents, or 0.8 percent, to a record $2.7110 a gallon on the New York Mercantile Exchange. It was at $2.6995 at 3:10 p.m. Singapore time and is up 61 percent from a year ago.

Oil Supplies

Oil gained after Royal Dutch Shell Plc said a fire reduced output by more than 50 percent from a 155,000 barrel-a-day oil- sands plant in Alberta, potentially cutting shipments to the U.S.

Housing starts in the U.S. unexpectedly rose in October by 3 percent from September, the Commerce Department reported yesterday. The increase may mean demand for oil in the world’s largest energy consumer will continue to grow, said Dariusz Kowalczyk, chief investment strategist with CFC Seymour Ltd. in Hong Kong.

“The data, the dollar, the higher risk appetite they have all combined to push oil prices higher,” he said.

An Energy Department report today is expected to show that U.S. crude-oil inventories rose for a second time, gaining 750,000 barrels last week, according to the median estimate from a Bloomberg News survey of 16 analysts.

There will be no floor trading in New York tomorrow because of the Thanksgiving holiday in the U.S.

To contact the reporter on this story: Christian Schmollinger in Singapore at [email protected]

Last Updated: November 21, 2007 02:57 EST

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