SF: Oil Rises as U.S. Debt Weakens Dollar, Countering Demand Concern
July 26 (Bloomberg) -- Oil advanced as the U.S. President's warning that the country's debt stalemate may damage the economy weakened the dollar, boosting the appeal of commodities and countering concern that the crisis will hurt demand.
Futures in New York gained as much as 0.8 percent as Barack Obama warned of a "deep economic crisis" without a compromise to avert an Aug. 2 default. The dollar fell against all its 16 major peers, making dollar-priced assets such as oil appear cheaper. An Energy Department report tomorrow may show U.S. crude stockpiles dropped for an eighth week.
"All the support in the oil market is coming from the dollar," said Roland Stenzel, a crude trader at E&T Energie Handelsgesellschaft mbH in Vienna. "Last week it was all about the European Union, this week it's about the U.S."
Crude for September delivery climbed as much as 78 cents to $99.98 a barrel in electronic trading on the New York Mercantile Exchange and was at $99.66 at 1:40 p.m. London time. Brent for September settlement was at $118.48 a barrel, up 54 cents, on the London-based ICE Futures Europe exchange.
The European benchmark contract traded at a premium of $18.68 a barrel to West Texas Intermediate, compared with a record close of $22.63 on July 14.
New York crude gained 9 percent this year as the Dollar Index, which tracks the U.S. currency against six trading partners, declined 6.8 percent. The dollar weakened to $1.4483 against the euro from $1.4377 yesterday. It fell to a record low versus the Swiss franc.
Sovereign Debt
"With issues of sovereign debt persisting, oil prices are likely to struggle to find any upside momentum," Amrita Sen, an oil analyst at Barclays Plc in London, said in an e-mail. "Macro concerns and debt-related fears are likely to dominate the fundamentals."
U.S. crude supplies dropped 1.75 million barrels from 351.7 million last week, according to the median of eight analyst estimates in the Bloomberg News survey. That would mark the longest stretch of declines in more than three years. Gasoline inventories may have climbed 125,000 barrels, the survey shows.
September WTI closed higher than its 50-day moving average on July 20 and has stayed above that level, "which would suggest a consolidation for a further move higher," MF Global Holdings Ltd. analyst Tom Pawlicki said in a report.
The moving average convergence-divergence, an indicator of technical strength, turned positive on that day, according to data compiled by Bloomberg. Front-month futures have resistance along the upper Bollinger Band, at about $100.60 today.
--With assistance from Christian Schmollinger and Yee Kai Pin in Singapore and Ben Sharples in Melbourne. Editors: Raj Rajendran, Alessandro Vitelli.
