Crude oil surged to its highest level in three weeks as the dollar weakened against major currencies on speculation the Federal Reserve will inject funds into the U.S. economy. Crude rose as much as 1.4 percent as the dollar’s decline boosted the appeal of commodities as an alternative investment. The Fed will probably start a fresh round of stimulus tomorrow, announcing a plan to purchase at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News. “It’s the weaker dollar and expectations for the stimulus package,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “Half a trillion dollars was supposedly priced in since we rallied from September to October, but people are already anticipating that it could be larger.” Crude for December delivery rose 90 cents, or 1.1 percent, to $83.85 a barrel at 10:29 a.m. on the New York Mercantile Exchange. Earlier, it touched $84.14, the highest price since Oct. 7. The Fed, meeting in Washington today and tomorrow, is expected to restart a program of securities purchases to spur growth, reduce unemployment and increase inflation, said 53 of 56 economists surveyed by Bloomberg News. Australia and India raised interest rates to cool inflation hours before the Fed meeting. The dollar dropped 1 percent to trade at $1.4035 per euro. Earlier, it touched $1.4051 against the single European currency, the weakest level since Oct. 25. Commodity Inflation “Today, the bulls have the dollar working in their favor,” said Peter Beutel, president of Cameron Hanover Inc., a trading-advisory company in New Canaan, Connecticut. “It looks like commodity inflation will be the name of the game as the economy recovers.” The Thomson Reuters/Jefferies CRB Index of 19 commodities advanced 0.9 percent to 304.53, the strongest level in two years. Eighteen of the commodities increased. “Oil prices are likely to immediately react to movements in the U.S. dollar” after the Fed meeting, according to a report today by JPMorgan Chase & Co. analysts led by Lawrence Eagles, the head of commodity strategy in New York. “We would use any oil weakness as a buying opportunity.” Merrill Forecast The price of Brent oil in London may rise above $90 a barrel by the end of the year because of the quantitative easing program in the U.S., according to a report today by Francisco Blanch, head of global commodity research at Bank of America Corp.’s Merrill Lynch unit in London. Brent crude for December settlement gained 67 cents, or 0.8 percent, to $85.29 a barrel on the London-based ICE Futures Europe exchange. Brent last traded above $90 a barrel on Oct. 3, 2008. “With oil demand on a robust upward trend, winter weather around the corner and more QE ahead, we believe global oil demand is set to hit a new record in 2011,” Blanch said in the report, dated yesterday. Brent could top $90 if the Fed decides on an asset purchase program of $500 billion or more, he said. The International Energy Agency raised its demand forecasts for this year and next by 300,000 barrels a day each last month, citing increased consumption in industrialized nations. Global oil use will increase 1.5 percent in 2011 to 88.2 million barrels a day and by 2.5 percent this year to 86.9 million. Demand contracted in 2008 and 2009. Saudi Arabian Oil Minister Ali al-Naimi said yesterday in Singapore that consumers are happy with oil between $70 and $90 a barrel and that the market is “very well supplied.” ’OPEC Shift’ Those comments “were confirmation of the OPEC shift,” JPMorgan’s Eagles said in his report, adding that $70 has become a floor for oil prices and $80 the mid-point. “We would even go so far as questioning whether $90 is the ceiling.” Crude climbed for a second day before a government report forecast to show that U.S. supplies of diesel and heating oil are at their lowest level since July. U.S. stockpiles of distillate fuels probably declined 1 million barrels last week, according to a Bloomberg News survey before tomorrow’s Energy Department report. All 15 respondents said supplies would fall. U.S. crude inventories probably increased 1.5 million barrels, the survey showed. Supplies surged 5.01 million barrels to 366.2 million in the week ended Oct. 22, the highest level since July and 13 percent above the five-year average. 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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