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Crude Oil Rises as Dollar Declines; Gasoline, Heating Oil Prices Advance

Oil surged to its highest year-end price since 2007 as the dollar weakened and gasoline and heating oil futures climbed.

Crude capped its second consecutive year of gains as the dollar dropped against the euro, boosting commodities’ appeal as an alternative investment. Oil settled above $91 a barrel after testing technical support near $89. Gasoline and heating oil advanced before the January contracts expired today.

“A weaker dollar and stronger product prices are all bolstering crude,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant.

Oil for February delivery climbed $1.54, or 1.7 percent, to settle at $91.38 a barrel on the New York Mercantile Exchange. Prices fell 13 cents this week and rose 8.6 percent in December.

Futures advanced 15 percent this year amid signs that the global economic recovery is gaining momentum and stoking demand for raw materials. Commodity prices beat increases in stocks, bonds and the dollar as China led a recovery from the first global economic recession since World War II.

“As you start the new quarter, you’ll start to see new capital come into the oil market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Oil ended the year above $90 a barrel for only the second time since the contract started trading in 1983, after settling at $95.98 in 2007. Prices touched a 26-month high of $92.06 a barrel in intraday trading today.

Dollar, Products

The dollar declined to a two-week low of $1.3425 against the euro as confidence in an economic recovery spurred investors to purchase riskier assets. The euro gained 0.7 percent to $1.3378 at 3:14 p.m. in New York.

Heating oil and gasoline futures had 20 percent advances in 2010 amid forecasts for demand to increase as the economy improves.

Fuel demand is forecast to rise 0.9 percent in 2011 to 19.3 million barrels a day, after a 1.7 percent gain this year, the department forecast earlier this month in its Short-Term Energy Outlook.

Gasoline for January delivery advanced 6.14 cents, or 2.6 percent, to expire at $2.4532 a gallon, the highest settlement since Sept. 30, 2008.

Heating oil for January delivery gained 5.83 cents, or 2.4 percent, to settle at $2.5437 a gallon on the exchange, the most since Oct. 3, 2008.

Fuel Demand

Total products supplied, a measure of fuel demand, gained 3.1 percent last week to 20.7 million barrels a day, the greatest amount since May 2008, according to an Energy Department report yesterday.

Oil fell as low as $89.05 a barrel earlier today. Prices have held above $89 a barrel since Dec. 21.

“We have a very very thin market,” said Peter Beutel, president of Cameron Hanover Inc., an energy adviser in New Canaan, Connecticut, who said that many traders were off for New Year’s Eve. Today’s price swings “strike me as primarily a condition of the market being thin.”

Oil volume in electronic trading on the Nymex was 277,619 contracts as of 3:14 p.m. in New York. Volume totaled 418,292 contracts yesterday, 34 percent below the average of the past three months. Open interest was 1.42 million contracts, the highest level since Nov. 15.

Price Forecast

Oil may fall next week amid speculation refiners will start building inventories at the beginning of the year, a Bloomberg News survey showed.

Eighteen of 31 analysts, or 58 percent, forecast crude oil will decline through Jan. 7. Ten respondents, or 32 percent, predicted prices will rise and three estimated there would be little change. Last week, 53 percent of analysts forecast the market would increase.

Supplies have fallen 12 percent, the most in 30 years, in December along the U.S. Gulf Coast, where refiners have a tax incentive to cut inventories at year’s end.

Brent crude for February settlement rose $1.66, or 1.8 percent, to $94.75 a barrel on the ICE Futures Europe exchange in London, the highest closing price since Oct. 1, 2008.

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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