Oil Rises a Third Day as Dollar Drop May Spur Investor Demand

By Christian Schmollinger and Gavin Evans

June 30 (Bloomberg) -- Crude oil rose for a third day in New York on speculation further weakness in the U.S. dollar will sustain investor demand for the commodity.

Declines in the dollar and political tension in the Middle East may push oil to $170 a barrel by the end of the year, OPEC President Chakib Khelil said June 28. A report tomorrow may show manufacturing in the U.S. contracted for a fifth month in June, reducing the likelihood of higher interest rates that may bolster the dollar.

``It's obvious that 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. in Tokyo. ``The market sentiment is getting stronger. $140 should be a good support level.''

Crude oil for August delivery rose as much as $1.72, or 1.2 percent, to $141.93 in after-hours electronic trading on the New York Mercantile Exchange. It was at $141.54 a barrel at 10:54 a.m. in Singapore.


The contract reached a record $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.

Oil has climbed 48 percent this year as the U.S. dollar declined against the euro and militant attacks in Nigeria and production failures in the North Sea cut supplies. The dollar may extend its decline against the euro if the European Central Bank boosts rates on July 3.

Manufacturing Report

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 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,'' said Gerard Burg, energy and minerals economist at National Australia bank Ltd. in Melbourne.

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.

The European Central Bank is expected to raise interest rates a quarter-percentage point to 4.25 percent when they meet July 3, according to a survey of economists by Bloomberg News.

``The ECB meeting 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 little changed at $1.5793 per euro in early Asian trading, from $1.5789 in New York on June 28. It fell to $1.6019 on April 22, the lowest since the euro's debut in 1999.

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.

Brent Oil's Record

Brent crude oil for August settlement rose as much as $1.55, or 1.1 percent, to $141.86 a barrel on London's ICE Futures Europe exchange. It was at $141.75 a barrel at 10:10 a.m. Singapore time. Prices reached $142.97, the highest since trading began in 1988, on June 27.

The Organization of Petroleum Exporting Countries pumps about 40 percent of the world's oil. Global demand will rise about 1.3 percent to 86.88 million barrels a day this year, the group said June 13. OPEC has reduced its forecast the past five months, reflecting the slowing global economy.

Political pressure on Iran over its uranium enrichment program and the depreciation of the U.S. currency have caused oil prices to advance, Khelil said.

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.

Daily output in Iran, the second-largest producer in OPEC after Saudi Arabia, reached a record 4.23 million barrels last week, Iranian state-run Press TV reported yesterday.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Gavin Evans in Wellington at gavinevans@bloomberg.net