Crude Oil Rises a Third Day on Outlook for Declines in Dollar

By Christian Schmollinger and Nesa Subrahmaniyan

June 30 (Bloomberg) -- Crude oil rose for a third day, trading near a record $142.99 a barrel in New York as the falling dollar spurred demand for commodities.

The dollar, which has declined 7.3 percent this year against the euro, may drop if the European Central Bank boosts rates on July 3, said Gerard Burg, the energy and minerals economist at National Australia Bank Ltd. in Melbourne. The European Central Bank is expected to raise interest rates a quarter-percentage point to 4.25 percent, according to a survey of economists by Bloomberg News.

``The dollar will be getting weaker so that is bringing fresh money into the oil market,'' said Tetsu Emori, a fund manager with Astmax Ltd., a fund management company, in Tokyo. ``Oil market sentiment is getting stronger.''

Crude oil for August delivery rose as much as $2.14, or 1.5 percent, to $142.35 a barrel in electronic trading on the New York Mercantile Exchange. It was at $142.19 a barrel at 3:12 p.m. in Singapore.

The contract reached its all-time high of $142.99 a barrel on June 27 before settling at $140.06, a gain of 0.3 percent on the day. Prices rose 4.2 percent last week as the Federal Reserve left interest rates unchanged and showed no signs it will support the dollar any time soon.

John Bolton, the former U.S. envoy to the United Nations, has said Israel would strike Iran between the U.S. presidential election in November and inauguration in January because the government in Tehran continues to resist pressure to halt its enrichment of uranium, which could be used to build a weapon.

Threats to Supply

Declines in the dollar and pressure on Iran to end its uranium enrichment program may push oil to $170 a barrel by the end of the year, OPEC President Chakib Khelil said June 28.

Foreign ministers from the Group of Eight nations last week suggested more talks to coax Iran into opening its nuclear program to inspectors, after speculation the Islamic Republic faces an imminent Israeli strike. Iran is the second-largest oil producer within OPEC.

The Organization of Petroleum Exporting Countries pumps about 40 percent of the world's oil and Iran is the group's second-biggest member.

Oil has also gained this year as militant attacks in Nigeria, Africa's second-biggest crude producer, and output failures in the North Sea reduced supplies.

U.S. Manufacturing

Brent crude oil for August settlement rose as much as $2.06, or 1.5 percent, to $142.37 a barrel on London's ICE Futures Europe exchange. It was at $142.20 a barrel at 3:13 p.m. Singapore time. Prices reached $142.97 a barrel on June 27, the highest since trading began in 1988.

The Institute for Supply Management's factory index probably showed U.S. manufacturing fell to 48.6 in June from 49.6 the previous month, according to a Bloomberg survey of economists. A reading below 50 signals contraction. The ISM will release the data tomorrow.

``That will have a pretty good impact across all the commodity markets,'' National Australia Bank's Burg said. The ECB meeting on interest rates ``as well will provide a bit of guidance as to what the potential for demand is going forward,'' said National Australia's Burg.

The dollar was at $1.5785 against the euro at 2:41 p.m. Singapore time from $1.5794, the lowest since June 9.

Avoid the dollar ``at all costs,'' investor Jim Rogers said in Shanghai today. ``The best investments in 2008 are commodities and natural resources. Agricultural prices have much higher to go over the next decade. We have a shortage of everything including seeds.''

Currency Moves

While the biggest driver in oil prices remains tight global supplies, movements in currencies and declining world equity markets have increased investment in commodities and volatility of prices, National Australia's Burg said.

Hedge fund managers and other large speculators almost doubled their bets on rising prices in the week ended June 24, according to U.S. Commodity Futures Trading commission data.

Net-long positions in New York oil contracts, the difference between contracts to buy and sell the commodity, gained 90.5 percent to 24,217 contracts. Long positions rose from a five-month low a week earlier while contracts to sell oil fell a second week to a two-month low.

A dispute over safety and staff selection at Chevron Corp.'s unit in Nigeria, Africa's biggest oil producer has been settled, ending a five-day strike, a union official said June 28.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.
Last Updated: June 30, 2008 03:15 EDT