Oil Trades Above $79 After Rising on Signs of Economic Recovery

By Ann Koh

Oct. 28 (Bloomberg) -- Oil traded above $79 a barrel after gains in U.S. home prices and an industry report showing a drop in stockpiles bolstered optimism that the world’s largest energy user is recovering from the worst recession since the 1930s.

Crude oil advanced 1.1 percent yesterday after the American Petroleum Institute reported yesterday that crude stockpiles in the U.S. declined 1 percent to 339.5 million last week. The S&P/Case-Shiller home-price index also showed that prices increased from the prior month.

“We do see the global economy continue on its recovery path, and we could see more dollar weakness which has a positive effect for dollar-denominated commodities,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “As much as underlying fundamentals, we haven’t really seen a huge degree of improvement.”

Crude oil for December delivery was at $79.32 a barrel, down 23 cents, at 3:56 p.m. Singapore time. Prices rose as much as 28 cents, or 0.4 percent, to $79.83 a barrel. Yesterday, the contract climbed 87 cents to settle at $79.55 a barrel on the New York Mercantile Exchange. Prices have gained 78 percent this year and reached a one-year high of $82 a barrel on Oct. 21.

“Oil is hovering at fairly elevated levels,” Emmanuel Ng, an economist at Oversea-Chinese Banking Corp., said in an interview with Bloomberg Television in Singapore. “If we continue to see oil prices climbing higher and higher into 2010, then the ghost of the oil worries will come back and haunt Asia just a little bit, we suspect.”

Oil fell 2.3 percent on Oct. 26 when the dollar climbed, reducing investor demand for commodities.

Dollar Rally

A rally in the dollar may last for “a while,” Jim Rogers, chairman of Rogers Holdings, said in a Bloomberg Television interview in Singapore.

“Everybody is pessimistic on the dollar,” Rogers said. “Whenever you have everybody on the same side of the boat, you know what you have to do. We may have a rally in the dollar, a decline in commodity prices or stock prices for a while.”

The dollar was at $1.4833 per euro as of 6:56 a.m. in London from $1.4804 yesterday. It also touched $1.4770 yesterday, the strongest level since Oct. 13.

The dollar has weakened so far this year versus all but one of its 16 major counterparts, including a 5.7 percent drop against the euro.

OPEC Production

The Organization of Petroleum Exporting Countries will raise oil output if there’s a “real” shortage of supply, Qatari Oil Minister Abdullah bin Hamad al-Attiyah said yesterday in Ras Laffan, Qatar. The 12-member group is scheduled to meet Dec. 22 in Luanda, Angola, to review production targets.

“Sometimes the price of oil has no correlation to demand and supply,” al-Attiyah said. “Now what we are seeing is that oil has a strong correlation with the dollar.”

Higher oil prices pose a “significant risk” to global recovery efforts from the recession, Fatih Birol, chief economist of the International Energy Agency, said at a conference in London on Oct. 26.

An Energy Department report today will probably show that U.S. crude-oil supplies increased last week as fuel stockpiles fell, according to a Bloomberg News survey.

Stockpiles of crude oil rose 1.91 million barrels in the week ended Oct. 23 from 339.1 million the prior week, according to the median of 16 estimates by analysts before the department’s report. All respondents forecast a gain.

Supplies of distillate fuel, a category that includes heating oil and diesel, declined 1 million barrels from 169.9 million the prior week, according to the survey.

Brent crude oil for December settlement was at $77.65 a barrel, down 27 cents, at 3:56 p.m. Singapore time. It increased 66 cents, or 0.9 percent, to end the session at $77.92 a barrel on the London-based ICE Futures Europe exchange yesterday.

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net