Oil Trades Near $77 as Dollar Slips on U.S. Economic Expansion

By Yee Kai Pin

Dec. 3 (Bloomberg) -- Crude oil traded near $77 a barrel in New York as the dollar weakened, spurring investor demand for commodities as a hedge against inflation.

Oil fell 2.3 percent yesterday after U.S. government data showed an increase in stockpiles held in the world’s biggest energy consumer. The dollar pulled back against the euro before a monthly industry report that may indicate the U.S. economic revival is spreading beyond manufacturing.

“The dollar has weakened and it’s driving the oil market higher,” said Ken Hasegawa, a commodity derivatives sales manager at Newedge in Tokyo. “We can see some buying interest from funds.”

Crude oil for January delivery was at $76.66 a barrel, up 6 cents, in electronic trading on the New York Mercantile Exchange at 2:07 p.m. in Singapore. Yesterday, the contract fell $1.77 to settle at $76.60 a barrel. Prices have gained 72 percent this year.

An Institute for Supply Management index of non- manufacturing businesses, which make up the largest part of the U.S. economy, rose to 51.5 in November from 50.6 in October, based on a Bloomberg News survey before today’s report. The U.S. currency dropped to $1.5081 per euro at 3 p.m. in Tokyo, from $1.5044 yesterday in New York. Gold hit a record for a third day, touching $1,255.04 an ounce.

“The gold market may go higher but I don’t think crude oil will reach $80,” Hasegawa said. “Demand is still low and stockpiles are increasing -- there’s pressure on this market.”

Crude Stockpiles

Commercially held U.S. crude oil inventories rose 2.09 million barrels to 339.9 million, the highest level since August, the Energy Department report showed. Stockpiles were forecast to decline by 400,000 barrels, according to the median estimate from analysts surveyed by Bloomberg News.

Gasoline supplies climbed 4 million barrels to 214.1 million as imports hit a 14-week high, the Energy Department said. Distillate fuel inventories fell 1.17 million barrels to 165.7 million, 29.9 percent above the five-year average level.

“Demand indications for November-to-date remain firm for gasoline, greatly improved for jet, but are still very sluggish for other distillates,” analysts at Barclays Capital, led by Paul Horsnell, said in a report after the Energy Department data.

Total U.S. daily fuel demand averaged 18.5 million barrels in the four weeks ended Nov. 27, down 3.2 percent from a year earlier, the Energy Department said. Consumption slipped by 497,000 barrels a day last week.

Further Isolation

Iran announced an expansion of its nuclear program in defiance of United Nations demands, a move the Obama administration said will further isolate Tehran from the international community. Iran is the second-largest producer in the Organization of Petroleum Exporting Countries.

“We might see a little bit of Middle Eastern tension start to pick up,” said Jonathan Barratt, managing director at Commodity Broking Services Pty in Sydney. “If things in Iran start to heat up a little bit, then we’ll probably get a little bit of a premium start to be built into the market.”

President Mahmoud Ahmadinejad’s Cabinet ordered the Atomic Energy Organization of Iran to begin building 10 uranium enrichment sites within two months, the official Islamic Republic News Agency reported Nov. 29.

Brent crude oil for January settlement traded at $78.20 a barrel, up 32 cents, on the London-based ICE Futures Europe exchange, at 2:08 p.m. in Singapore. The contract fell $1.47, or 1.9 percent, to end yesterday’s session at $77.88 a barrel.

To contact the reporter on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net