Crude Oil Futures Increase to 25-Month High in New York as Dollar Tumbles

Crude oil rose to the highest level in 25 months as the dollar tumbled, boosting the appeal of commodities as an alternative investment.

Oil jumped 1.4 percent as the Dollar Index dropped to the lowest level since Nov. 23 after U.S. employers added fewer jobs than forecast in November. The unemployment rate unexpectedly increased. Futures for delivery from 2013 through 2018 fell below the current month’s price.

“The rally is due to a much lower dollar,” said Hamza Khan, an analyst with Schork Group Inc., a consulting company in Villanova, Pennsylvania. “This is not based on fundamentals.”

Oil for January delivery rose $1.19 to settle at $89.19 a barrel on the New York Mercantile Exchange, the highest closing price since Oct. 7, 2008. Futures increased 6.5 percent this week and 12 percent this year.

Oil futures for delivery in March 2012 fell as nearer-term contracts rallied, a sign that participants are reducing bets on the steepness of a price increase in the next few years. The long-term contracts moved into a market structure known as backwardation.

“The movement has been at work for a while, and it is what you expect when the fundamentals are tightening,” said Costanza Jacazio, a commodities analyst at Barclays Capital in New York. “From the end of September we’ve seen a major rebalancing. The trend has changed.”

Dollar Index

The Dollar Index, which tracks the currency against six others, dropped 1.1 percent, the most since Oct. 20 as of 2:38 p.m. in New York. The U.S. currency fell 1.2 percent to $1.3371 per euro, compared with $1.3209 yesterday.

The Thomson Reuters/Jefferies CRB Index of 19 commodities advanced 1.3 percent to 316.16, the strongest level since Nov. 10. Fifteen of the commodities increased.

“The rally continues, with $90 now in our sights,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We shrugged off the unemployment numbers because of the way the dollar reacted to it.”

U.S. payrolls increased 39,000, less than the most pessimistic projection of economists surveyed by Bloomberg News, according to Labor Department figures released today in Washington, a signal fuel demand may be slow to rebound. The jobless rate rose to 9.8 percent, the most since April, Labor Department figures showed today.

Fuel Consumption

U.S. fuel consumption decreased 1.8 percent in the week ended Nov. 26 to 18.5 million barrels a day, the lowest level since the seven days ended Oct. 15, an Energy Department report showed this week. It was the third weekly decline.

“When the market doesn’t sell off on bearish news, it shows that there’s some sort of internal strength there,’ said Matt Smith, a commodities analyst for Summit Energy in Louisville, Kentucky.

The Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the economy, rose to 55 in November from 54.3 a month earlier. A reading higher than 50 signals growth.

Crude oil extended gains, touching $89.33 a barrel in intraday trading after breaking technical support at $88.63, the high from Nov. 11.

“Some of this is just ongoing bullish market sentiment that was only briefly influenced by the employment report,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The softer U.S. dollar is a focus, although that has been a real argument of convenience. We’re not applying it in any sort of consistent way.”

$120 Oil

Oil will advance to $120 a barrel before the end of 2012 as consumption grows in emerging economies, according to a report today from JPMorgan Chase & Co.

Crude futures in New York will average $93 a barrel next year, up from a previous estimate of $89.75, and Brent crude traded in London will average $95 a barrel, compared with an earlier assessment of $91.75, the bank’s analysts forecast.

“Strong emerging oil demand growth over the next 24 months is very likely to lift the call on OPEC production to levels last seen at the peak of the oil price spike in 2008,” analysts led by Lawrence Eagles in New York said.

The Organization of Petroleum Exporting Countries, which is responsible for about 40 percent of global supplies, is unlikely to increase production in the first half of next year unless prices surge through $100 a barrel, the analysts said. OPEC oil ministers meet Dec. 11 in Quito, Ecuador.

Brent crude for January settlement on the ICE Futures Europe exchange in London gained 73 cents, or 0.8 percent, to $91.42 a barrel. Earlier, it reached a two-year high of $91.85 a barrel.

Oil volume in electronic trading on the Nymex was 756,029 contracts as of 2:42 p.m. in New York. Volume totaled 712,492 contracts yesterday, 2.7 percent above the average of the past three months. Open interest was 1.37 million contracts.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net.

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

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