Oil Rises More Than $2 as Dollar's Drop Boosts Hedging Appeal

By Margot Habiby

Sept. 18 (Bloomberg) -- Crude oil rose more than $2 a barrel as turbulence in the financial markets enhanced the appeal of commodities as a safe haven.

Crude has rallied more than $10 a barrel from its seven- month low of $90.51 two days ago as the dollar dropped against the euro after the U.S. agreed to rescue American International Group Inc. Oil stockpiles fell because of Hurricane Ike, and traders took advantage of the price dip to buy oil.

``Some of the uncertainty about the end effects of what the Fed has done have weakened the dollar, and people look to commodities as a hedge against the falling dollar,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut.

Oil for October delivery rose $2.83, or 2.9 percent, to $99.99 a barrel at 9:57 a.m. on the New York Mercantile Exchange. Futures are up 4.1 percent this year and have lost 32 percent of their value since reaching a record $147.27 a barrel on July 11.

``The runup to $147 was clearly overdone, but I think selling down past $120 or $100 was overdone, as well,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``There's a general acknowledgement of fundamental valuation aside from all this financial-market hubbub.''

Oil tumbled more than $10 in the first two days of the week as Lehman Brothers Holdings Inc. filed for bankruptcy, and Merrill Lynch & Co. was sold to Bank of America.

The U.S. Energy Department reported yesterday that crude oil stockpiles dropped the most since May because of disruptions from Hurricane Ike. Gold and crops also advanced today.

Nigerian Supply

Nigerian militants stepped up attacks on oil companies, raising concern supply may be disrupted. Nigeria lost 280,000 barrels of daily crude output to attacks launched by armed militants in the Niger Delta oil region in the past five days.

``Current shut-in production stands at about 1 million barrels a day, but it's not necessarily due to militant attacks,'' Levi Ajuonuma, a spokesman for the Nigerian National Petroleum Corp., said by phone from the country's capital, Abuja. ``Only 28 percent is because of militant action.''

The U.S. currency touched a two-week low against the euro after the world's biggest central banks said they will act to revive financial markets, reducing demand for the currency as a haven. The dollar slid as much as 1.3 percent to $1.4509. Gold has risen 13 percent in the past two days. The metal gained $30.50, or 3.6 percent, to $881 an ounce on the Comex division of the Nymex.

Dollar, Inventories

``The weaker greenback and new supply risks around the world are reviving the oil price,'' Eugen Weinberg, a commodity analyst at Commerzbank AG in Frankfurt. ``We saw during the first wave of the credit crisis that people consider oil and gold to be safe havens and they may be doing the same now.''

U.S. crude-oil stockpiles fell 6.33 million barrels to 291.7 million barrels last week, according to the Energy Department. It was the fourth straight weekly inventory decline.

Brent crude oil for November settlement gained $2.89, or 3.1 percent, to $97.73 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.