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Crude Rises as Dollar Weakens; JPMorgan Predicts Price Rally

Oil advanced as the dollar weakened, increasing the investment appeal of commodities, while analysts at JPMorgan Chase & Co. predicted a price rally as the U.S. currency declines further.

Crude is headed for a second weekly decline as concern persisted that the global economic recovery is slowing as fuel stockpiles increase. Reports this week showed that China’s oil processing grew the least in 18 months and U.S. crude supplies rose in two of the last three weeks.

“We continue to believe that any setback in the crude price should be bought,” Lawrence Eagles, JPMorgan’s head of commodity strategy in New York, said today in a monthly oil market report.

Oil for December delivery rose 76 cents, or 0.9 percent, to $81.32 a barrel on the New York Mercantile Exchange as of 1:05 p.m. London time. The contract has fallen 0.7 percent this week. Brent crude for December settlement rose 93 cents to $82.76 a barrel on the ICE Futures Europe exchange in London.

The Dollar Index, which measures the greenback’s strength against currencies including the Japanese yen and the euro, fell 0.1 percent. Crude has gained 13.1 percent since the beginning of September, while the Dollar Index has fallen 7.1 percent.

JPMorgan said in its report it expects the dollar to weaken by 4 to 5 percent over the next six months, giving oil a boost. A declining dollar increases the appeal of energy as an inflation hedge.

‘Next Leg Higher’

The strength in crude is also bolstered by rising demand in several regions, the bank said. A narrowing spread, when Dubai oil rises closer to North Sea Brent, typically shows increasing Asian demand.

“The signal that the next leg higher is imminent will be tighter Dubai forward spreads and a narrower Brent-Dubai spread,” Eagles said in the report.

The Brent-Dubai exchange for swaps, or EFS, for December narrowed 12 cents to $2.40 a barrel today, according to data from PVM Oil Associates. The EFS is the price difference between Brent futures and Dubai swaps contracts and signifies Brent’s premium relative to the Middle East grade. The December-January Dubai spread shrank to minus 36 cents from minus 80 cents on Sept. 27, according to data compiled by Bloomberg.

Technical analysis by Lind-Waldock in Chicago shows that oil is poised to reach $90 a barrel by the middle of December. The December contract has been trading in an uptrend, a pattern of higher peaks and higher valleys, since touching a low of $75.10 on Sept. 23, Blake Robben, a strategist at Lind-Waldock, a division of MF Global Ltd., said in an interview.

“Since then, the market has made higher highs and higher lows,” Robben said.

A line drawn from the Sept. 23 low to the Oct. 20 low of $79.90 projects to $90 by the middle of December, he said.

Fourteen of 30 analysts in a Bloomberg News survey, or 47 percent, forecast crude oil will fall through Oct. 29. Eleven respondents, or 37 percent, predicted prices will be little changed and five estimated an increase. Last week analysts were split over whether futures would drop or climb.

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