BLBG: Oil Rises as Greek Aid Eases Demand Concerns, Bolsters Hedging
By Grant Smith and Christian Schmollinger
March 29 (Bloomberg) -- Crude oil rose for the first time in four days as the European Union’s aid package for Greece allayed demand concerns and bolstered the euro.
Oil topped $80 a barrel in New York as the dollar fell against the euro following the International Monetary Fund and European Union pledge to help finance Greece’s debt. Investors buy commodities as the U.S. currency declines to offset inflation concerns.
“The connection between Greece and the oil market is via the euro-dollar exchange rate,” said Andy Sommer, an analyst at Elektrizitaets-Gesellschaft in Dietikon, Switzerland. “With that agreement, the dollar is weakening, the euro strengthening, and the currency concern is coming out of the market.”
Crude oil for May delivery rose as much as 78 cents, or 1 percent, to $80.78 a barrel in electronic trading on the New York Mercantile Exchange. It was at $80.71 at 11:29 a.m. in London. Brent crude for May settlement was up 65 cents at $79.94 a barrel on the London-based ICE Futures Europe exchange.
Oil has advanced 3.6 percent in the first quarter, peaking at a 15-month high of $83.95 a barrel on Jan. 11.
On March 26, leaders of the 16-nation euro region endorsed a Franco-German proposal for a mix of IMF and bilateral loans at market interest rates, while voicing confidence that Greece won’t need outside help to cut its deficit, the biggest in the 16-nation euro region.
The dollar fell to $1.3481 to the euro today, from $1.3410 in New York last week. The dollar index, measured against six major currencies, dropped as much as 0.6 percent today and was at 81.298 at 11:28 a.m. London time.
Consumer Demand
Traders will be watching for a report today on consumer spending in the U.S., the world’s largest oil user, for signs that the economy is improving, leading to higher fuel demand. It will probably show personal spending rose for a fifth month in February, according to a Bloomberg news survey of economists.
Oil traders are basing their strategies on consumer demand, said Stephen Schork, president of Schork Group Inc., an energy- trading consultant in Villanova, Pennsylvania.
“Increased spending will lead to increased revenues and thus higher wages, allowing consumers to absorb higher prices at the pump,” Schork said in a report today. “This scenario scales on a global level; every economy follows the same template.”
Hedge-fund managers and other large speculators last week reduced their bets on rising oil prices for the first time since early February, according to U.S. Commodity Futures Trading Commission data.
Speculative net-long positions, the difference between orders to buy and sell the commodity, fell 9.9 percent to 111,919 contracts in the week ended March 23, the Washington- based commission said in a report.
“We’re entering the second quarter which is a slower demand period,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “The short-term fundamentals, at least on inventories, could be bearish and we’ve had a decent run on prices so if you’ve got any profit, take it.”
To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
