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Oil Is Little Changed After Rising to Record on Dollar Weakness

Bloomberg: Oil Is Little Changed After Rising to Record on Dollar Weakness

By Christian Schmollinger

April 23 (Bloomberg) — Crude oil was little changed in New York near a record as investors purchased commodities after the dollar fell to an all-time low against the euro and concern that global supply may be disrupted.

Oil surged to $119.90 a barrel yesterday after the dollar reached $1.6019 to the euro on expectations of higher European Central Bank interest rates. Royal Dutch Shell Plc closed 169,000 barrels a day of Nigerian supply after attacks on a pipeline last week. Russia, the world’s second-largest producer, earlier this month said first quarter output declined.

“The currency trade affecting the oil market puts a lot of intraday volatility to the market,” said Jonathan Kornafel, the director for Asia at Hudson Capital Energy in Singapore. “The market is looking for any bullish news and it seems that everyday there is another reason to go higher, whether Russia or Nigeria.”

Crude oil for June delivery was at $118.19 a barrel, up 12 cents, at 12:21 p.m. Singapore time in after-hours electronic trading on the New York Mercantile Exchange.

The May contract, which expired yesterday, rose $1.89, or 1.6 percent, to settle at $119.37 a barrel on Nymex, a record close. Futures earlier reached the highest intraday price since trading began in 1983. Prices are up 79 percent from a year ago.

Brent crude for June settlement was at $116.07 a barrel, up 12 cents, on London’s ICE Futures Europe exchange at 12:17 p.m. Singapore time. The future gained $1.52, or 1.3 percent, to close at a record $115.95 a barrel yesterday. The contract touched $116.75, an all-time intraday high.

Dollar, Commodities

The falling dollar and higher global demand for raw materials have led to records this year for commodities including gold, corn, soybeans and rice. The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 1.6 percent to 1,549.29 yesterday, up 37 percent from a year earlier.

“Because of the concerns of stability of supply from the different regions, investors think oil has a good chance of increasing,” said Victor Shum, senior principal at Purvin & Gertz Inc. in Singapore. “So it’s a great hedge against the dollar and inflation.”

The dollar today traded near a record low against the euro on speculation the Federal Reserve will cut borrowing costs further while the European Central Bank keeps interest rates on hold. The currency fell below $1.60 per euro for a second day.

The dollar traded at $1.5993 per euro at 12:23 p.m. in Singapore, from $1.5991 in New York yesterday, when it touched $1.6019, the lowest since Europe’s currency debuted in 1999.

The dollar also dropped yesterday after a U.S. industry report showed sales of previously owned homes fell in March. Falling house prices and rising mortgage delinquencies have slowed U.S. economic growth.

Supply Threats

Oil also gained on the Nigerian supply disruption and a U.K. refinery strike threat.

Shell said April 21 it would declare a force majeure on oil exports after 169,000 barrels of daily output in Nigeria was suspended because of rebel attacks. Force majeure is a clause that allows companies to miss deliveries because of circumstances beyond their control.

The Movement for the Emancipation of the Niger Delta has claimed responsibility for most of the assaults on oil installations since the beginning of 2006, which have cut more than 20 percent of crude exports from Nigeria, Africa’s biggest producer.

“That was a big blow what they did last week, so that problem is clearly not going away,” said Hudson Capital’s Kornafel.

Non-OPEC Supply

Ineos Group Holdings Plc proceeded with the shutdown of its 200,000 barrel-a-day Grangemouth refinery in Scotland as talks continued with a union to avert a strike. The plant takes crude from BP Plc’s Forties Pipeline System, which transfers oil from more than 50 North Sea fields.

Declines in output from countries outside the Organization of Petroleum Exporting Countries are raising concerns of supply faltering.

Petroleos Mexicanos, the state-owned oil company, said crude oil output in March dropped 11 percent from a year earlier. Output from Cantarell, the biggest field and among the largest in the world, declined to 1.11 million barrels a day, a 30 percent fall and the most in at least 18 years.

“The issue of non-OPEC supply failing to meet expectations has been around,” said Purvin & Gertz’s Shum. “It supports strong pricing versus last year.”

Expected gains in U.S. crude-oil stockpiles last week may damp prices. Rising imports could create a build, a Bloomberg News survey indicated.

Crude Stockpiles

Oil supplies probably advanced 1.5 million barrels in the week ended April 18 from 313.7 million barrels, according to the median of responses from 15 analysts before this week’s Energy Department report.

Gasoline inventories probably dropped 2 million barrels from 215.8 million barrels the week before, according to the median of responses. Distillate-fuel supplies, which include heating oil and diesel, probably dropped 50,000 barrels from 106.1 million barrels the prior week, according to the median of estimates in the survey.

The Energy Department is scheduled to release its weekly report on inventories today at 10:30 a.m. in Washington.

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

Last Updated: April 23, 2008 00:41 EDT

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