BS: Oil Pares Biggest Monthly Rally in Two Years as Dollar Climbs
Oct. 31 (Bloomberg) -- Crude oil dropped in New York as the dollar climbed and equities fell, trimming the biggest monthly gain in more than two years.
Futures fell as much as 2.1 percent after Japan stepped in to foreign-exchange markets to weaken the yen against the dollar, making commodities priced in the U.S. currency less attractive to investors. Stocks retreated from a three-month high on concern European leaders will struggle to raise funds to contain the region’s debt crisis.
“The dollar and the equities are the primary drivers and this situation will remain in place,” said Kyle Cooper, director of research for IAF Advisors in Houston. “People realized that all the euphoria last week has not in any way solved the problem in Europe.”
Crude oil for December delivery declined $1.14, or 1.2 percent, to $92.18 a barrel at 10:13 a.m. on the New York Mercantile Exchange. Futures are up 16 percent this month, the biggest gain since May 2009. Oil settled at $93.96 on Oct. 27, the highest level since Aug. 1.
Brent oil for December settlement dropped $1.10, or 1 percent, to $108.81 a barrel on the London-based ICE Futures Europe exchange.
“Given the strength of the dollar and weakness in the equity markets, crude oil will struggle,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The dollar has posted strong gains against most currencies after the Japanese government took steps to curb the yen’s strength.”
Dollar Strengthens
The dollar rose against all of its 16 major peers.
The yen dropped as much as 4.9 percent against the dollar after Japan stepped into foreign-exchange markets to weaken the currency as its gains to a postwar record threatened an export- led economic recovery.
Japan intervened for the third time this year and pledged to keep selling the yen. Finance Minister Jun Azumi said the move was carried out to combat “one-sided speculative moves that don’t reflect the economic fundamentals of our economy.”
The Dollar Index, which tracks the U.S. currency against six major peers including the euro and the yen, rose 1.3 percent to 76.018.
“Oil is down with other commodities as the dollar strengthens,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. who correctly predicted prices would recover from last month’s slump.
The Standard & Poor’s GSCI Index of 24 raw materials slid 1.3 percent to 644.01.
Equities Drop
U.S. stocks declined, trimming the biggest monthly advance since 1987 in the Standard & Poor’s 500 Index. The S&P 500 fell 1.1 percent to 1,270.37, and the Dow Jones Industrial Average dropped 1 percent to 12,104.68.
Crude and equities rose last week after European leaders agreed to expand the region’s bailout fund.
China can’t play the role of “savior,” the official Xinhua news agency said yesterday, as investors awaited the country’s response to Europe’s request for money to boost the fund.
Oil at $80 to $100 a barrel is “reasonable” and will continue to encourage the building of additional spare production capacity, United Arab Emirates Energy Minister Mohamed al-Hamli said today. It is too early to discuss what the Organization of Petroleum Countries is likely to do when it meets to decide oil-production policy in December, he said.
Supply and Demand
Iran’s governor to OPEC, Mohammad Ali Khatibi, said supply and demand in world oil markets is balanced and there is no need for an emergency meeting of the producer group, according to the state-run Iranian Students News Agency yesterday. OPEC plans to meet next on Dec. 14 in Vienna.
Hedge funds increased bullish bets on West Texas Intermediate oil, the grade traded in New York, to the highest level since May on expectations that the gap between the U.S. benchmark price and Brent will continue to narrow.
Money managers boosted net-long wagers in futures and options by 15 percent in the week ended Oct. 25, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Oct. 28.
--With assistance from Grant Smith in London and Aki Ito in Tokyo. Editors: Margot Habiby, Charlotte Porter
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net Moming Zhou in New York at Mzhou29@bloomberg.net;
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net
