Crude oil rose for the first time in three days in New York as the euro rebounded from a six-month low, increasing the appeal of commodities as an alternative investment to the U.S. dollar. Crude advanced after the European currency pared losses after touching the lowest level since Feb. 15 as investors bet that Europe’s debt crisis will limit economic growth. Oil dropped as much as 2.6 percent and equities plunged before coming off the day’s lows. “If the euro can manage a rally today after the sharp sell-off last week, then crude’s got a base here around $85,” said Richard Ilczyszyn, a Chicago-based senior marketing strategist at MF Global Holdings Ltd. “All eyes are on equities and currencies.” Oil for October delivery gained 96 cents, or 1.1 percent, to $88.20 a barrel at 12:21 p.m. on the New York Mercantile Exchange. Futures ranged from $85 to $88.95. Prices have fallen 3.5 percent this year. Brent oil for October settlement gained 6 cents to $112.83 a barrel on the London-based ICE Futures Europe Exchange. The European benchmark contract was at a premium of $24.63 to U.S. futures, compared with the record close of $26.87 on Sept. 6. It was the narrowest spread since Aug. 29, compared with settlement prices. “Part of it is the spread trade,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The entire appetite for risk trade seems to be based on the idea that the economy looks so bad right now that it can’t possibly get any worse.” Economic Outlook Oil tumbled 2 percent in New York on Sept. 9 on the Greek crisis and after a plan for jobs growth announced by President Barack Obama failed to boost confidence in the U.S., the world’s largest economy. The day before, Federal Reserve Chairman Ben S. Bernanke also disappointed investors by stopping short of announcing new stimulus measures. The European common currency was little changed at $1.3624 at 12:23 p.m. in New York from $1.3656 on Sept. 9. Earlier, it fell as much as 1.2 percent to $1.3495 on speculation that German Chancellor Angela Merkel is preparing for a Greek debt default. “Crude’s simply reflecting views about where the economy is going,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “On days when economic indicators are good, crude goes up, and on days when indicators are bad and people think Greece is going to default, it goes down.” Equities Slip The Standard & Poor’s 500 Index slipped 0.8 percent to 1,144.49 at 12:24 p.m. in New York, and the Dow Jones Industrial Average dropped 109.55 points, or 1 percent, to 10,882.58. Oil markets are likely to tighten during the rest of this year and into 2012 after the final release of crude from the U.S. Strategic Petroleum Reserve, according to a Goldman Sachs Group Inc. research note e-mailed today. The bank maintained its 2012 Brent oil price forecast at $130 a barrel. Libya will be able to restore most of the oil production halted during fighting against Muammar Qaddafi in six months, and resume full capacity in 18 months, according to a report today from the Organization of Petroleum Exporting Countries. Libyan production plunged to 45,000 barrels a day last month from 1.59 million in January, before the conflict, according to Bloomberg estimates. OPEC “marginally” lowered estimates for global oil consumption in 2012, and trimmed its 2011 assessment by 150,000 barrels a day, in a monthly report today. “Lowering the demand forecast raises the expectations of an OPEC production cut,” said Phil Flynn, vice president of research at PFGBest in Chicago. He called the revision bullish. Storm Impact Earlier, crude also fell as production resumed in the Gulf of Mexico as the threat of storms eased. The remains of Tropical Storm Nate weakened as it moved further inland over eastern Mexico, the U.S. National Hurricane Center said. About 6.2 percent of oil production and 4 percent of natural gas output from the Gulf of Mexico were shut after Lee battered the area, a Bureau of Ocean Energy Management, a Regulation and Enforcement report showed Sept. 9. Hedge funds cut bullish bets on oil last week while increasing those on gasoline. The funds and other large speculators reduced wagers that prices will rise, with the number of futures and options combined falling by 5,780, or 3.6 percent, to 155,837, according to the Commodity Futures Trading Commission’s Commitments of Traders report. Bets motor fuel will rally increased by 13 percent, the data showed. In London, money managers raised bullish bets on Brent crude by 12 percent in the week ended Sept. 6, according to data from ICE Futures Europe. Oil volume in electronic trading on the Nymex was 376,157 contracts as of 12:33 p.m. in New York. Volume totaled 677,483 contracts Sept. 9. Open interest was 1.49 million contracts. 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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