Crude Oil Rises as Dollar Retreats, Spurring Commodity Buying

By Grant Smith

Jan. 21 (Bloomberg) -- Crude oil rose as the U.S. currency retreated from its highest in six weeks against the euro, spurring investor demand for dollar-priced commodities.

Oil earlier declined on forecasts a U.S. Energy Department report will probably show that crude stockpiles, 10 percent above their five-year average, increased for the 15th time in the past 17 weeks. U.S. inventories probably rose 1.5 million barrels last week, according to the median of analyst estimates in a Bloomberg News survey.

“We’re seeing oil rebound this morning as the dollar pulls back,” said Andrey Kryuchenkov, an analyst with VTB Capital in London. “The softer dollar normally underpins commodity prices as they become relatively cheaper for foreign investors and a hedge against inflation.”

Crude oil for March delivery advanced as much as $1.15, or 2.8 percent, to $41.99 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $41.55 a barrel at 1:32 p.m. London time.

The February contract expired yesterday, up $2.23, or 6.1 percent, at $38.74 a barrel in the biggest gain since Dec. 31. Sales volume for the contract was less than March’s as traders avoided taking supplies at the Cushing, Oklahoma, delivery point for Nymex futures.

“Oil will not stay as cheap as it is, we believe the downward trend will turn very soon,” Georg Schuh, chief investment officer of Deutsche Bank Advisors, said in a television interview in Frankfurt. “Investment demand came down with the deleveraging of many hedge funds. The long-term trend of rising demand in emerging countries, however, is intact.”

Inventory Report

The dollar traded for $1.2919 per euro as of 1:23 p.m. in London, having earlier climbed to $1.2848, its strongest level against the single European currency since Dec. 9.

The Energy Department is scheduled to release its weekly inventory report tomorrow, a day later than usual because of the Jan. 19 Martin Luther King Jr. holiday.

“We can see oversupply in the market, it’s obvious that inventories are very high,” said Sintje Diek, an analyst at HSH Nordbank in Hamburg. “For the coming months, oil demand will be weak, and then recover at the end of the year.”

Crude oil stockpiles at Cushing, where West Texas Intermediate traded on the Nymex is stored, climbed 2.5 percent to 33 million barrels during the week of Jan. 9, the Energy Department said last week. It was the highest since at least April 2004, when the department began keeping records for the location. Total capacity there is 47.7 million barrels, according to data from Lipow Oil Associates LLC.

Brent crude oil for March settlement traded for $43.66 a barrel, 4 cents higher on London’s ICE Futures Europe exchange as of 1:23 p.m. local time.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net