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Oil Rises for First Day in Three as Equities Gain, Dollar Falls
Oil rose for the first time in three days as equities gained and the dollar retreated against the euro, boosting commodities’ appeal as an alternative investment.
Oil increased 0.8 percent as stocks climbed after improved demand for bonds from Portugal to Poland eased concern that Europe’s sovereign-debt crisis will derail the global economic recovery. The dollar fell after reaching the highest level in almost four weeks yesterday.
“Equities and the dollar are kind of pushing things along,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “You’re starting to see a little more of the investment side in the market and the volumes are picking up after a slow August.”
Crude oil for October delivery rose 58 cents to settle at $74.67 a barrel on the New York Mercantile Exchange. Prices have gained 5 percent in the past year.
Prices advanced from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles decreased 7.31 million barrels to 354.2 million. October oil rose 75 cents, or 1 percent, to $74.84 a barrel in electronic trading at 4:34 p.m. API released the data a day late because of the Labor Day holiday Sept. 6.
The Standard & Poor’s 500 Index climbed 0.6 percent to 1,098.87 in New York, and the Dow Jones Industrial Average advanced 46.32 points, or 0.5 percent, to 10,387.01. Both benchmarks increased for the fifth time in six days.
Bond Sale
U.S. stocks followed European equities higher after Portugal’s sale of bonds due in 2021 attracted bids for 2.6 times the amount offered, compared with a bid-to-cover ratio of 1.6 in the earlier March sale. An auction of five-year debt by Poland attracted the biggest demand since 2008, while Czech borrowing costs fell to a record low at a sale of three-year bonds.
“The market climbs whenever there are any signs that the economy is recovering,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
Crude pared gains after the Federal Reserve said the U.S. economy showed “widespread signs of a deceleration” from mid- July through August, according to a survey of 12 regional Fed banks. The economy maintained its expansion, underscoring the Fed view that while the recovery has cooled, the economy isn’t relapsing into a contraction.
Five regional banks reported “economic growth at a moderate pace,” two pointed to “positive developments or net improvements” and the remaining five said conditions were mixed or decelerating.
Dollar
The dollar fell 0.3 percent against the euro. The U.S. currency traded at $1.2719 per euro compared with $1.2682 yesterday in New York. The dollar strengthened 1.5 percent yesterday, its biggest single-day advance since Aug. 11.
Oil traders are showing increasing confidence that U.S. economic growth will rebound next year as they take advantage of the widening gap between current prices of crude and contracts for delivery six months from now.
The price advantage, or contango, to buy and hold crude more than doubled to $5.76 a barrel last month from $2.60 at the end of July, as contracts for October delivery fell 9.4 percent and March dropped 5.3 percent. ConocoPhillips hired the tanker TI Europe for storage in the Gulf of Mexico, according to data on the website of RS Platou A/S, an Oslo-based shipbroker.
Price Forecast
The U.S. Energy Department cut its crude-oil price forecast for 2010 to $77.37 a barrel from $79.13 in August, according to its monthly Short-Term Energy Outlook, released today. Prices have averaged $77.86 a barrel this year.
Brent crude oil for October settlement gained 43 cents, or 0.6 percent, to $78.17 a barrel on the London-based ICE Futures Europe exchange, the highest price since Aug. 10.
Brent cost $3.50 more than Nymex futures. The spread was $3.65 a barrel yesterday, the widest between the most-active contracts on the New York and London exchanges since May 20.
“That’s a reflection of the high inventory levels here versus the U.K.,” said Matt Smith, a commodities analyst for Summit Energy in Louisville, Kentucky.
U.S. oil supplies were 11 percent above the five-year average in the week ended Aug. 27, the Energy Department reported last week. Analysts forecast stockpiles climbed for a third week through Sept. 3.
Oil inventories probably increased 1 million barrels last week, according to the median of 15 responses in a Bloomberg News survey before an Energy Department report tomorrow.
Gasoline Demand
Demand for gasoline in the U.S. slid to the lowest level in six months last week, according to MasterCard Inc.’s SpendingPulse report today. Motorists bought an average 9.13 million barrels a day in the week ended Sept. 3, down 0.5 percent from the prior week. It was the lowest level since Feb. 12 and the third straight drop.
Oil volume in electronic trading on the Nymex was 674,671 contracts as of 4:35 p.m. in New York. Volume totaled 838,172 contracts yesterday, 35 percent above the average of the past three months. Open interest was 1.35 million contracts.
To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net
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