Crude Oil Rises as Dollar’s Decline Increases Commodity Demand

By Gavin Evans

March 23 (Bloomberg) -- Crude oil rose to the highest in almost four months in New York as the dollar extended its losses against the euro, increasing the investment appeal of commodities.

Oil advanced for a third day as the dollar’s decline improved the appeal of hard assets as an inflation hedge and made commodities cheaper for non-U.S. buyers. Crude for May delivery jumped 11 percent last week as the U.S. Federal Reserve announced new initiatives to lower interest rates and speculators turned bullish on oil for the first time in three weeks.

“Sentiment has definitely improved on the back of the Fed announcement,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “We’re going to need further weakness in the dollar to really establish a base at $50.”

Crude oil for May delivery rose as much as 83 cents, or 1.6 percent, to $52.90 a barrel in after-hours electronic trading on the New York Mercantile Exchange. That was the highest since Dec. 1. Futures were at $52.51 at 9:45 a.m. in Singapore.

The contract rose 3 cents to $52.07 a barrel on March 20, taking its gain for the week to 11 percent. Prices surged after plans by the Federal Reserve to spend $1.15 trillion buying Treasuries and mortgage bonds sent the dollar to a 10-week low, making the commodity cheaper for buyers outside the U.S.

“There’s not much out there that suggests demand is really going to pick up in the near term,” Hassall said. “It will take time to flow through” and oil may prove vulnerable unless the dollar continues to push lower, he said.

Dollar, Economy

The dollar fell to $1.3619 per euro in early Asian trading from $1.3582 late in New York last week. The U.S. currency touched $1.3738 on March 19, the weakest level since Jan. 9.

Brent crude oil for May settlement rose as much as 98 cents, or 1.9 percent, to $52.20 a barrel on London’s ICE Futures Europe exchange, and was at $51.71 at 9:35 a.m. in Singapore. It climbed 1.1 percent to $51.22 on March 20, taking its gain for the week to 12 percent.

Gasoline consumption in the U.S., the world’s largest oil user, usually peaks during the nation’s summer holidays June through August. Memorial Day on May 25 marks the start of this year’s holiday season.

While the U.S. economy remains weak, oil should still get some benefit from that seasonal influence, Hassall said. The nation’s stockpiles of the fuel held the equivalent of 23.9 days of demand in the week ended March 13, down from 25.6 days a year earlier, the Department of Energy said last week.

Hedge-fund managers and other large speculators turned bullish on oil prices last week, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 13,507 contracts on the New York Mercantile Exchange on March 17, the Washington-based commission said last week. Traders had bet on price declines in the previous two weeks.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net