Oil Heads for Biggest Weekly Gain in Two Months on Dollar Drop

By Christian Schmollinger

Aug. 22 (Bloomberg) -- Crude oil is headed for its biggest weekly increase in more than two months after rising almost 5 percent yesterday as the dollar slumped, prompting investors to buy commodities.

Oil is poised for its first weekly gain in two weeks and its largest increase since June 6. Energy and metals futures climbed as the U.S. currency fell the most against the euro in more than a month. An Aug. 20 missile-shield agreement between the U.S. and Poland has ``real anti-Russian potential,'' the Foreign Ministry said in Russia, the second-biggest oil producer.

``Gains were pretty broad based across the commodity space,'' said Gerard Burg, an energy and minerals economist with National Australia Bank Ltd. in Melbourne. ``The U.S. dollar fell which magnified the upward trend. It's a big move but we've seen this level of volatility and it's once again a symptom of how tight the market remains at this time.''

Crude oil for October delivery was at $121.67 a barrel, up 49 cents, at 1:49 p.m. Singapore time on the New York Mercantile Exchange. Yesterday, the contract surged $5.62, or 4.9 percent, to settle at $121.18 a barrel, the biggest increase since June 6. Futures are down 18 percent from a record $147.27 reached on July 11. Prices are up 75 percent from a year ago.

The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 3.9 percent to 1508.967 yesterday, the highest since Aug. 1. Gold for December delivery rose $22.70, or 2.8 percent, to $839 an ounce on the Comex division of Nymex.

The Reuters/Jefferies CRB Index of 19 commodities soared 3.7 percent to 405.92 in New York yesterday. A settlement at that level today would mark a 6.2 percent gain for the week, the most since July 1975.

Dollar, Russia

Brent crude oil for October settlement rose as much as 75 cents, or 0.6 percent, to $120.91 a barrel on London's ICE Futures Europe exchange. It was at $120.75 a barrel at 2:49 p.m. Singapore time. The contract yesterday gained $5.80, or 5.1 percent, to settle at $120.16 a barrel.


The dollar traded at $1.4866 per euro at 11:24 a.m. in Singapore. It dropped 1 percent yesterday and touched $1.4903, the weakest level since Aug. 14 and the biggest fall since June. The dollar has risen 4.8 percent versus the euro in August, which would be the biggest monthly gain since May 2001.

Poland signed an agreement on Aug. 20 with the U.S. to host an American anti-missile base and to provide aid to bolster the country's air defenses. Russia has warned the move will lead to a new arms race in Europe and is reconsidering its ties with the North Atlantic Treaty Organization.

Russia has defied calls by U.S. President George W. Bush and other Western leaders for an immediate withdrawal from Georgia since a cease-fire agreement last week ended five days of fighting.

Pipeline Closed

The Baku-Supsa pipeline, which pumps more than 100,000 barrels of oil a day from Azerbaijan to the Georgian port of Supsa on the Black Sea coast, is still shut on security concerns following fighting between Georgian and Russian troops, Toby Odone, a London-based spokesman for BP, said yesterday by telephone. Railway transportation to Georgia's Black Sea ports has also been suspended because of a damaged bridge.

The Baku-Tbilisi-Ceyhan pipeline, which transports oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, will be fully operational this week and tanker loading will resume next week, officials said. The pipeline has a capacity of 1 million barrels a day.

``There's been no or very little oil coming out of there and that shortage has been eclipsing the amount of oil that Saudi Arabia and OPEC has been adding to the market,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy in Singapore. ``Now that it's more than just what's happening in the Caucuses and Russia may shut off the pipes a little bit, the world seems to be paying more attention.''

Price May Rise

Crude oil may rise next week because of a weakening dollar, tension between the U.S. and Russia and falling gasoline stockpiles.

Sixteen of 29 analysts surveyed by Bloomberg News, or 55 percent, said prices will increase through Aug. 29. Seven of the respondents, or 24 percent, said oil will be little changed and six said there would be a drop in prices. Last week, 63 percent expected prices to increase.

The oil survey has correctly predicted the direction of futures 49 percent of the time since its start in April 2004.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.