By Christian Schmollinger May 20 (Bloomberg) -- Oil prices are diverging from the dollar by the most in three months as investors dump commodities for the safety of the U.S. currency. Crude’s 30-day correlation to the dollar is minus 0.94, as the two move in opposite directions 94 percent of the time, the highest level since February, according to data compiled by Bloomberg. A correlation of minus 1 would mean the two always move inversely. The correlation was positive until three weeks ago as signs of a global economic recovery boosted both the dollar and oil amid expectations for an increase in fuel demand. Since then Europe’s sovereign debt crisis drove the single European currency to a four-year low against the greenback and crude dropped 22 percent. “Part of the reasons that we have these big moves in oil pricing and other markets are really investors avoiding riskier assets,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. Oil, which rose 1.5 percent to $70.94 a barrel in New York today, dropped to this year’s low of $67.90 yesterday. The dollar has climbed 8 percent against the euro, according to data compiled by Bloomberg. Debt Contagion The debt contagion in Europe that’s fueled by Greece’s budget deficit of 13.6 percent of its gross domestic product prompted the European Union to provide a $110 billion bailout on May 3. That was followed on May 10 by an agreement with the International Monetary Fund for a $955 billion backstop. While the dollar has strengthened and gold gained to a record $1,249.40 an ounce, oil has fallen the most since February 2009 and copper had its largest decline in three months. “The oil markets were ignoring the Greek problem while they thought the problem was contained but that all changed the first week of May,” said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “It is a deleverage issue, not a simple currency versus commodity issue. That’s why gold is up and crude is down.” As oil and the dollar parted, the correlation between crude and equities increased. Both markets dropped since the EU bailout, with the Standard & Poor’s 500 Index declining 7.3 percent during the period. The S&P 500 and oil moved in tandem 90 percent of the time, according to the correlation over a 30-day period. That measure peaked at 94 percent on March 11. Flowing Back “Equity markets worldwide have also been significantly impacted by the events in Europe,” said Purvin & Gertz’s Shum. “Oil prices are still highly correlated with the financial factors.” Periods of inverse correlation between oil and the dollar have averaged 102 days, according to The Schork Report. The two have diverged since April 26, a period of 24 days. Oil’s negative relationship to the dollar will continue when crude rebounds and the currency weakens, with energy and equities benefiting as corporations report improving profits, according to the report. The newsletter pointed to General Motors Co., which on May 17 reported its first quarterly profit since the second quarter of May 2007. “Strong earnings will lead to a weaker dollar from a fiscal standpoint but will also bring back investor confidence,” according to Schork. “A more confident investor is a more risky investor. So expect money to flow away from the dollar, currently a ‘safe haven,’ back toward crude oil.” To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net

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