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Crude prices rise on weakening greenback

Dollar’s decline has prompted investors to switch funds into gold, silver and oil

(LONDON) Crude oil prices rose on speculation the weakening US dollar will spur demand for the commodity from buyers holding other currencies.

The dollar’s 10 per cent decline this year has prompted investors to switch funds into gold, silver and oil. Saudi Arabian Foreign Minister Prince Saud Al-Faisal rejected calls by Iran and Venezuela at an Opec summit in Riyadh to abandon the US currency for oil sales, saying the kingdom doesn’t want the dollar to ‘collapse’.

‘Fears of continued dollar weakness and no loosening of Opec’s quotas are keeping the market firm,’ said Christopher Bellew, a broker at Bache Commodities here.

Crude oil for January delivery rose as much as US$1.21, or 1.3 per cent, to US$95.05 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at US$94.54 at 11:08am here.

Oil prices have eased 4.1 per cent from the record US$98.62 reached in New York on Nov 7. The dollar was at US$1.4682 per euro from US$1.4662 late last week.

Oil prices declined last week after US stockpiles unexpectedly rose and the nation’s weather service forecast mild temperatures during the three months through February.

Stockpiles jumped 2.8 million barrels to 314.7 million as of Nov 9, or 2.9 per cent more than the five-year average for the period, the energy department said.

Brent crude oil for January settlement climbed as much as US$1.19, or 1.3 per cent, to US$92.81 a barrel on the London-based ICE Futures Europe exchange. It was at US$92.06 at 11:08am London time.

‘The oil price will go up with the weakening dollar,’ said Gerrit Zambo, an oil trader at BayernLB in Munich. ‘If the dollar gets weaker, it’s cheaper for countries with other currencies to buy oil.’

The Organization of the Petroleum Exporting Countries (Opec), supplier of more than 40 per cent of the world’s oil, held its third heads of state summit this weekend since being founded in 1960.

Saudi Arabia’s Prince Al-Faisal rejected last week a push by Iran and Venezuela to debate pricing oil in currencies other than the US dollar. The kingdom, the world’s largest oil exporter, won’t consider the proposal, Prince Al- Faisal said at a meeting of oil and finance ministers that was accidentally broadcast to journalists.

Opec leaders didn’t discuss increasing oil production to ease near-record prices. Oil ministers from the group meet in Abu Dhabi on Dec 5 to discuss output quotas.

‘The link between the dollar and oil is ‘spurious’,’ analysts at Goldman Sachs Group including London-based Jeffrey Currie said in a report yesterday.

Oil’s gains are ‘driven by declining inventories and escalating cost inflation in the industry’, Goldman said.

US crude inventories fell to their lowest in more than two years in the week ended Nov 2, according to energy department data.

Last week, prices fell as hedge-fund managers and other large speculators reduced their bets on rising oil prices to an 11-week low, according to US Commodity Futures Trading Commission data.

The net-long position in New York oil futures, the difference between orders to buy and sell the commodity, plunged 74 per cent to 27,566 contracts at Nov 13, the commission said. Contracts to sell oil jumped 35 per cent.

 

Source: Bloomberg (Business Times 20 Nov 07)

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