Oil Surges Above $99 as Weaker Dollar Spurs Commodity Demand

Crude oil rose above $99 a barrel for the first time in New York as a weakening U.S. dollar increased demand for commodities.

Oil, gold and silver gained as the dollar fell yesterday to a record low against the euro on speculation that the Federal Reserve will lower interest rates for a third time this year. Oil gained after Royal Dutch Shell Plc said a fire more than halved output from a 155,000 barrel-a-day oil-sands plant in Alberta, potentially cutting shipments to U.S. refineries.

Oil has become a hedge for investors and the weaker U.S. dollar has contributed to the rise in gold and oil, said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. The price strength in oil is also supported by the tight fundamentals.

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 $98.90 at 11:11 a.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.

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 $96.20 at 11:11 a.m. Singapore time.

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.

Dollar, Heating Oil

The dollar touched $1.4854 per euro yesterday, the lowest since the 13-nation currency was started 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 Purvin & Gertz's Shum.

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.

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.

Gasoline Surges

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.

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.

Heating oil for December delivery rose 1.59 cents, or 0.6 percent, to a record $2.7060 a gallon on the New York Mercantile Exchange at 10:40 a.m. Singapore time. It rose 3.3 percent, to settle at $2.6901 yesterday and is up 61 percent from a year ago.

Inventories

An Energy Department report today is expected to show that U.S. crude-oil inventories rose 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.

Trading volumes the past three sessions have been light and prices would have probably fallen yesterday had it not been for the weak dollar, Altavest's Hartmann said. Light trading again today is likely to exaggerate any reaction to the inventory data.

We could be in for a wild day, he said. We could have a big exhaustion tail where people take profits before the long weekend.

Source - Bloomberg