Crude Oil Advances as U.S. Equities Increase, Dollar Declines Against Euro

Crude oil rose as U.S. equities increased and the dollar dropped against the euro, bolstering the appeal of raw materials to investors.

Futures climbed 0.8 percent after the Standard and Poor’s 500 Index advanced, led by a gain in commodity companies. The U.S. currency slipped from the highest level versus the euro since April 1. Oil retreated earlier when the International Energy Agency cut its global demand estimate for this year by 190,000 barrels a day, or 0.2 percent.

“Oil climbed as the S&P 500 rebounded,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The correlation between the two is alive and well. Investors look at the S&P as a sign of where the economy is going.”

Crude oil for June delivery increased 76 cents to settle at $98.97 a barrel on the New York Mercantile Exchange. The contract dropped as much as 3 percent and climbed 2.3 percent today. Prices are up 31 percent from a year ago.

Brent oil for June settlement increased 41 cents, or 0.4 percent, to end the session at $112.98 a barrel on the London- based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 851,811 contracts as of 3:20 p.m. in New York. Volume totaled 1.02 million yesterday, 40 percent above the average of the past three months. Open interest climbed to a record 1.664 million contracts.

“Open interest increases along with volatility,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s a sign that this is a hot market and investors are expecting movement. Up or down it really doesn’t matter, they plan to profit from the moves.”

Stock Market Gains

The S&P 500 Index (SPX) increased 0.5 percent to 1,348.08 at 3:20 p.m. after dropping as much as 0.8 percent to 1,332.03. The Dow Jones Industrial Average gained 0.5 percent to 12,695.12 after a 0.7 percent loss earlier today.

The dollar fell 0.3 percent against the euro to $1.4237 after increasing to $1.4124 earlier today.

Oil tumbled 15 percent last week, the biggest decline in two years, following the death of Osama bin Laden and a 3.4 percent gain in the U.S. currency.

“The dollar took a hit again today,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “After such a big selloff as we’ve seen, the market is vulnerable to a bounce.”

Citigroup today revised down its three-month Brent crude forecast to $110 a barrel and for West Texas Intermediate, the grade traded in New York, to $100.

‘Renewed Concerns’

“Renewed concerns about U.S. growth, rising U.S. crude oil inventories and stretched speculative long positioning support our revisions,” a team led by London-based Guillermo Felices wrote in a report today.

U.S. crude oil inventories rose 3.78 million barrels to 370.3 million last week, the highest level since May 2009, an Energy Department report showed yesterday. Gasoline stockpiles unexpectedly increased 1.28 million barrels to 205.8 million, the first gain in 12 weeks.

Gasoline demand fell 1.3 percent to 8.83 million a day last week, the lowest level since the seven days ended February 11, according to the department.

Fuel demand in North America will decline this year by 190,000 barrels to 23.7 million a day, the Paris-based IEA said. The agency lowered its forecast for the region by 220,000 barrels a day from last month’s report, citing lower growth projections from the International Monetary Fund.

High Pump Prices

“High gasoline prices are scaring off some incremental demand,” said Rick Mueller, a principal with ESAI Energy, LLC in Wakefield, Massachusetts. “We’re going to see people conserve more and cut down on trips.”

Gasoline declined for a second day on falling demand, rising stockpiles and speculation refineries will escape damage from the swollen Mississippi River. The fuel surged 6.1 percent on May 9, the most since July 2009, on concern production and distribution would be crippled by the flood.

“A refinery catastrophe got priced into the gasoline market prematurely,” Kilduff said. “The gains are now being given back.”

Gasoline for June delivery dropped 5.89 cents, or 1.9 percent, to settle at $3.0639 a gallon in New York. Yesterday, the fuel decreased 7.6 percent, the biggest single-session fall since Feb. 17, 2009.

Regular gasoline at the pump, averaged nationwide, rose 2.2 cents to $3.984 a gallon yesterday, AAA said on its website. The price climbed to $3.985 on May 4, the highest level since July 24, 2008.

To contact the reporter on this story: 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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