Crude Oil Rises as Asian Equity Gains May Spur Demand for Fuels

By Christian Schmollinger

July 27 (Bloomberg) -- Crude oil rose to the highest in more than three weeks on expectations that gains in Asian equity markets are the precursor to a recovery in the global economy that will spur fuel demand.

Oil also gained after investors sought commodities as a hedge against inflation as the dollar traded near a seven-week low against the euro. The MSCI Asia Pacific Index climbed 1.3 percent today, the 10th straight increase and the longest winning streak since January 2004.

“Investors see the equity markets as a good lead for what you can expect oil demand to be going forward,” said Ben Westmore, an energy and minerals economist at National Australia Bank Ltd. in Melbourne. “At times when you’ve got high inflation expectations, investors tend to move toward real assets such as commodities.”

Crude oil for September delivery gained as much as 94 cents, or 1.4 percent, to $68.99 a barrel in after-hours electronic trading on the New York Mercantile Exchange. That was the highest intraday price since July 2. Futures were at $68.80 a barrel at 3:07 p.m. in Singapore. The contract earlier fell as much as 0.5 percent to $67.68 a barrel.

Oil last week posted its biggest weekly gain since May, and followed a 6.1 percent increase the week before, when U.S. equities climbed 7 percent.

The dollar traded at $1.4262 per euro as of 2:56 p.m. in Singapore from $1.4202 in New York on July 24. It touched $1.4291 on July 23, the lowest level since June 3.

Correlation

Oil has moved in tandem with benchmark stock indexes. The MSCI Asia-Pacific Index and U.S. crude futures showed a correlation of 0.5 in the past month, compared with -0.1 a month earlier, according to data compiled by Bloomberg. A correlation of 1 means the two moved in lockstep.

Crude’s gains may be limited as inventories of gasoline and diesel fuel in the U.S., the world’s biggest oil user, have climbed, National Australia’s Westmore said.

Gasoline inventories climbed 813,000 barrels to 215.4 million in the week to July 17, the sixth straight gain, according to an Energy Department report on July 22. Stockpiles of distillate fuel rose 1.22 million barrels to 160.5 million, the highest since January 1985.

“Although crude inventories are falling, it’s just going into gasoline supplies and we haven’t seen much evidence of the summer driving season,” Westmore said. “Eventually these fundamentals will correct and you see that in these gasoline and distillate inventories getting drawn down.”

Oil Inventories

Crude-oil supplies dropped 1.8 million barrels to 342.7 million last week, the Energy Department report showed. The reduction left nationwide crude stockpiles 7.3 percent higher than the five-year average for the period.

Brent crude oil for September settlement rose as much as 96 cents, or 1.4 percent, to $71.28 a barrel, and traded at $71.15 on London’s ICE Futures Europe exchange at 3:08 p.m. Singapore time. The contract rose 1.6 percent to $70.32 on July 24, the highest settlement since June 29.

Speculators’ net-long positions in New York oil, the difference between contracts to buy and sell the commodity, plunged 86 percent in the week ended July 21, the U.S. Commodity Futures Trading Commission reported.

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