Oil Rises to a Six-Month High on U.S. Stimulus Bets, Fuel Supply Forecast

Crude oil surged to its highest level in six months as the dollar weakened against major currencies on speculation the Federal Reserve will take measures to stimulate the economy.

Crude rose 1.2 percent as the dollar’s decline boosted the appeal of commodities as an alternative investment. The Fed will probably start a fresh round of stimulus tomorrow, announcing a plan to purchase at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News.

“It’s the weaker dollar and expectations for the stimulus package,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “Half a trillion dollars was supposedly priced in since we rallied from September to October, but people are already anticipating that it could be larger.”

Crude for December delivery rose 95 cents to $83.90 a barrel on the New York Mercantile Exchange, the highest settlement price since May 3. Oil has risen 7.4 percent in the past year.

Prices increased from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles decreased 4.14 million barrels to 367.6 million. December oil rose $1.49, or 1.8 percent, to $84.44 a barrel in electronic trading at 4:39 p.m., the highest intraday price since May 4.

The Fed, meeting in Washington today and tomorrow, is expected to announce a program of securities purchases to spur growth, reduce unemployment and increase inflation, said 53 of 56 economists surveyed by Bloomberg News.

The Dollar Index, which tracks the U.S. currency against six major peers, slid 0.7 percent to 76.738 at 3:25 p.m. in New York, the lowest level in two weeks on a closing basis.

Commodity Inflation

“Today, the bulls have the dollar working in their favor,” said Peter Beutel, president of Cameron Hanover Inc., a trading-advisory company in New Canaan, Connecticut. “It looks like commodity inflation will be the name of the game as the economy recovers.”

The Thomson Reuters/Jefferies CRB Index of 19 commodities advanced 1.1 percent to 304.98, the strongest level in two years. Sixteen of the commodities increased.

“Oil prices are likely to immediately react to movements in the U.S. dollar” after the Fed meeting, according to a report today by JPMorgan Chase & Co. analysts led by Lawrence Eagles, the head of commodity strategy in New York. “We would use any oil weakness as a buying opportunity.”

$90 Brent

The price of Brent oil in London may rise above $90 a barrel by the end of the year because of the quantitative easing, or asset-purchase, program in the U.S., according to a report today by Francisco Blanch, head of global commodity research at Bank of America Corp.’s Merrill Lynch unit in New York.

Brent crude for December settlement gained 79 cents, or 0.9 percent, to $85.41 a barrel on the London-based ICE Futures Europe exchange, the highest level since May 4.

“With oil demand on a robust upward trend, winter weather around the corner and more QE ahead, we believe global oil demand is set to hit a new record in 2011,” Blanch said in the report, dated yesterday. Brent could top $90 if the Fed decides on an asset purchase program of $500 billion or more, he said.

The International Energy Agency raised its demand forecasts for this year and next by 300,000 barrels a day each last month, citing increased consumption in industrialized nations. Global oil use will increase 1.5 percent in 2011 to 88.2 million barrels a day and by 2.5 percent this year to 86.9 million. Demand contracted in 2008 and 2009.

Saudi Arabian Oil Minister Ali al-Naimi said yesterday in Singapore that consumers are happy with oil between $70 and $90 a barrel and that the market is “very well supplied.”

‘OPEC Shift’

Those comments “were confirmation of the OPEC shift,” JPMorgan’s Eagles said in his report, adding that $70 has become a floor for oil prices and $80 the mid-point. “We would even go so far as questioning whether $90 is the ceiling.”

Crude climbed for a second day before a government report forecast to show that U.S. supplies of distillate fuel, including diesel and heating oil, are at their lowest level since July. Inventories probably declined 1 million barrels last week, according to the median of 17 analyst responses in a Bloomberg News survey before tomorrow’s Energy Department report. All those surveyed said supplies would fall.

U.S. crude stockpiles probably increased 1.5 million barrels, the survey showed. They rose 5.01 million barrels to 366.2 million, the highest level since July and 13 percent above the five-year average.

Gasoline Inventories

Gasoline supplies were probably unchanged from the week before at 214.9 million barrels. U.S. gasoline demand fell 0.8 percent last week to 9.03 million barrels a day, the lowest level in three weeks, MasterCard Inc. said today in its SpendingPulse report.

Oil volume in electronic trading on the Nymex was 431,615 contracts as of 3:03 p.m. in New York. Volume totaled 596,923 contracts yesterday, 14 percent below the average of the past three months. Open interest was 1.42 million contracts, the highest level in two weeks.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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