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Crude Oil Edges Up to 26-Month High on U.S. Stimulus, Cold Snap

Oil edged up to a 26-month high on speculation the U.S. may extend stimulus measures, bolstering fuel demand in the world’s largest oil-consuming country, and on cold-weather forecasts for the U.S. and Europe.

Crude extended its longest advance in four weeks after Federal Reserve Chairman Ben S. Bernanke said the Fed may expand bond purchases beyond the $600 billion announced last month. Winter weather in parts of the U.S. and Europe boosted consumption of heating fuel.

“There’s been enough supportive economic news as of late to support the move higher, and the cold weather is helping,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The market continues to have a firm tone.”

Oil for January delivery rose 19 cents to settle at $89.38 a barrel on the New York Mercantile Exchange, the highest level since Oct. 7, 2008. Prices have climbed 13 percent this year.

Futures contracts starting in September 2011 were in backwardation today, with prices for future months lower than earlier months, a sign demand will outpace supply in the latter part of next year.

“This backwardation, which was rarely evident in the past few years, is likely to bring more buyers into the arena,” a Commerzbank AG team of analysts including Frankfurt-based Carsten Fritsch wrote in a report today.

Oil prices will average $86 a barrel next year and $100 in 2012 as demand increases, said Katherine Spector, a commodities strategist with CIBC World Markets in New York. Oil has averaged $78.85 so far this year on the Nymex.

U.S. Economy

Another recession “doesn’t seem likely,” Bernanke said in an interview broadcast yesterday by CBS Corp.’s “60 Minutes” program. He noted that U.S. unemployment may take five years to fall to a normal level.

U.S. gasoline consumption, which is driven by commuter traffic, increased 0.4 percent in the week ended Nov. 26 to 8.87 million barrels a day, the highest level in three weeks, an Energy Department reported Dec. 1.

Regular gasoline at the pump, averaged nationwide, gained 1.2 cents to $2.951 a gallon yesterday, AAA, the country’s largest motor club, said on its website.

Abnormally cold weather in Europe pushed heating-oil prices to the highest level in more than two years. The earliest widespread snowfall in the U.K. since 1993 has iced over roads, disrupting traffic.

Demand in Germany, Europe’s biggest market for the fuel used in heating, may rise because of freezing weather, said Christophe Barret, a London-based oil analyst at Credit Agricole CIB. “It’s very cold in Germany, they’ll be using a lot of heating oil.”

Brent Crude

Gasoil, or heating oil, futures for December delivery climbed 0.6 percent to $776 a metric ton on London’s ICE exchange today. Brent crude for January settlement rose 3 cents to $91.45 a barrel on the ICE Futures Europe exchange in London.

Temperatures from the U.S. Midwest to the Northeast will be lower than normal from Dec. 12 through Dec. 16, the U.S. National Weather Service Climate Prediction Center forecast today in its six-to-10 day outlook. meteorologists forecast the lowest temperatures so far this season for much of the Northeast and mid-Atlantic next week, along with the first snowstorm of the season.

Hedge funds and other large investors increased bullish bets on oil last week as prices rose. The funds boosted so-called net-long positions, or wagers that prices will climb, by 18 percent in the seven days ended Nov. 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest gain since the week ended Oct. 5.

Dollar Strength

Oil fell as much as 0.7 percent earlier today in New York as the dollar strengthened against other major currencies and futures failed to break technical resistance at $90 a barrel.

“Ninety dollars a barrel is now like a magnet that the bulls in the market want to break through,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. “These days, sentiment is so bullish that any bad news on the economic front can’t hurt the rally in oil.”

The Dollar Index, which tracks the currency against six others, gained 0.3 percent. The greenback increased 0.7 percent to $1.3317 per euro, compared with $1.3414 on Dec. 3. A stronger dollar curbs the appeal of commodities as an alternative investment.

Dollar Strength

“The strength of the dollar is holding us back and keeping us from breaching $90,” said Phil Flynn, a Chicago-based analyst and trader with investment adviser PFGBest. “There continues to be cold weather here and in Europe, and the ongoing concerns about Nigeria raise worries about supply.”

Oil volume in electronic trading on the Nymex was 658,086 contracts as of 2:22 p.m. in New York. Volume totaled 849,039 contracts Dec. 3, 22 percent above the average of the past three months and the highest level since Nov. 17. Open interest was 1.39 million contracts.

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