BLBG: Crude Oil Fluctuates Along With Equities as Dollar, Demand Drop
Crude oil fluctuated along with the stock market as the dollar fell to a four-month low against the euro and the recession cut U.S. fuel demand.
Oil rose as much as 1.5 percent in New York early today after the dollar dipped against major currencies on speculation the U.S. may lose its AAA credit rating. Fuel consumption in the past four weeks dropped 7.6 percent from a year earlier, a U.S. Energy Department report on May 20 showed.
“There is no fundamental reason for higher prices,” said Michael Fitzpatrick, a vice president for energy at MF Global Ltd. in New York. “There has been a preference for tangibles, such as oil, which is supporting prices.”
Crude oil for July delivery rose 2 cents to $61.07 a barrel at 10:45 a.m. on the New York Mercantile Exchange. The July contract is heading for a 7.1 percent gain this week. Prices are up 37 percent this year.
The dollar declined 0.8 percent to $1.3986 per euro, from $1.389 yesterday. It earlier touched $1.403, the lowest level since Jan. 2.
“Oil and other hot commodities operate as essentially an inflation hedge when the dollar drops,” said Nauman Barakat, senior vice president of energy at Macquarie Futures USA Inc. in New York. “They become a good way to store value.”
Standard & Poor’s yesterday cut its outlook on the U.K.’s AAA credit rating, and Pacific Investment Management Co.’s Bill Gross, manager of the world’s largest bond fund, said the same will “eventually” happen to the U.S.
Slow Recovery
The U.S. economy will probably be slow to recover as banks tighten lending and consumers boost savings, Federal Reserve Bank of Boston President Eric Rosengren said yesterday.
“We are getting a big rush out of the dollar and a spike in Treasury yields, which should result in a big inflow into commodities,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “We are just starting to see the move into commodities gather momentum.”
Nigeria’s oil production has fallen to less than half its capacity as fighting escalates against militants in the Niger River delta. The West African nation, formerly the continent’s biggest producer, now pumps about 1.6 million barrels a day, compared with capacity of 3.2 million, Petroleum Minister of State Odein Ajumogobia said yesterday.
Nigeria produced an average 1.84 million barrels a day last month, according to a Bloomberg News survey of oil companies, producers and analysts. The country exceeded its OPEC output target by an average 167,000 barrels a day in April.
Nigerian Attacks
Attacks by the Movement for the Emancipation of the Niger Delta, or MEND, and other armed groups have curbed Nigeria’s output since 2006.
“OPEC can thank MEND for putting Nigeria on quota,” O’Grady said.
The Organization of Petroleum Exporting Countries may keep output quotas unchanged at a May 28 meeting as recovering oil prices reduce the need for new supply cuts, according to a Bloomberg survey. The group will maintain a production target of 24.845 million barrels a day when it meets May 28, according to 25 of 27 analysts surveyed.
OPEC agreed at three meetings last year that the 11 members with production quotas would reduce output by 4.2 million barrels a day.
Brent crude for July settlement rose 18 cents, or 0.3 percent, to $60.11 a barrel on London’s ICE Futures Europe exchange. Futures touched $60.94, the highest since Nov. 10.
