Crude oil rose for the first time in four days as the dollar declined, bolstering the appeal of commodities as a hedge against inflation.

Oil climbed 2.6 percent as the U.S. currency slipped to $1.4821 per euro, its weakest level since Sept. 23, 2008. Net crude oil imports by China, Asia’s biggest energy-consuming country, increased 18 percent to 17.92 million metric tons in August, the second-highest level on record.

“More than anything else, we are seeing a reaction to the incredible weakness of the dollar,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Yesterday, the dollar strengthened and oil fell more than $2. Now the dollar’s plunged to the lowest level against the euro in a year and look what’s happened.”

Crude oil for October delivery rose $1.84 to settle at $71.55 a barrel at 2:42 p.m. on the New York Mercantile Exchange. Yesterday, prices declined $2.33, or 3.2 percent. The October contract expired today. The more actively traded November futures rose $1.83, or 2.6 percent, to $71.76.

The November contract retreated from the settlement after the American Petroleum Institute reported that U.S. stockpiles rose 276,000 barrels to 337.2 million last week. Oil was up $1.69, or 2.4 percent, to $71.62 a barrel at 4:32 p.m.

Oil has gained 60 percent this year on speculation fuel use will recover as the global economy emerges from the recession.

Higher Prices

“The market today is not based on physical offer and demand, but what they see as offer and demand in five, six years’ time,” Total SA Chief Executive Officer Christophe de Margerie said today in a Bloomberg Television interview in New York. “In the short term, it’s true there is oversupply. In the medium to long term, we see oil prices steady to say the least, with a risk to go to higher levels if we can’t meet demand.”

Futures for delivery in December 2015 rose $1.10, or 1.3 percent, to $86.66 a barrel in New York.

The U.S. Federal Reserve will keep its target rate for overnight bank loans at a record low of between zero and 0.25 percent following its two-day policy meeting starting today, a Bloomberg survey showed. Group of 20 leaders are meeting in Pittsburgh on Sept. 24-25.

“The G-20 and Fed meetings will potentially have a major impact on oil prices because of what they may mean for the dollar,” said Phil Flynn, vice president of research at PFGBest, a Chicago-based brokerage.

China’s net crude oil imports in August were second only to the record 19.2 million tons in July, according to data released by the Beijing-based Customs General Administration.

Asian Growth

“The Chinese are importing more oil than they need,” Flynn said. “Some is being purchased to build stockpiles and to meet future needs. They are also purchasing it as a hedge against the dollar.”

The Asian Development Bank said economic growth in the region, excluding Japan, will climb 3.9 percent this year, better than its March estimate of 3.4 percent, as China, India and Indonesia expand.

“The fundamentals, if anything, are still pretty weak and I don’t see a major turnaround,” said Guy Caruso, who was administrator of the U.S. government’s Energy Information Administration from 2002 until September 2008. “There are expectations that economic growth is returning, but at the same time production capacity has grown.”

The U.S. Energy Department may say crude oil supplies declined for a fourth week, according to analysts surveyed by Bloomberg News. Stockpiles fell 1.4 million barrels in the week ended Sept. 18, from 332.8 million, according to the median of 17 forecasts.

The Energy Department is scheduled to release its Weekly Petroleum Status Report tomorrow. The industry-funded API put out its own data at 4:30 p.m. today in Washington.

Excess Capacity

“There’s at least 4 to 5 million barrels a day of excess production capacity as we go into the winter season, which would usually mean pressure on prices,” said Caruso, now a senior energy and security adviser at the Center for Strategic and International Studies in Washington. “It appears the financial markets are prompting people to look at crude oil, and we may stay in a $60 to $80 range for the foreseeable future.”

Saudi Arabian Oil Co., the world’s biggest state oil company, sees little chance of pumping crude from idle fields next year because a recovery in world demand has yet to begin, its chief executive officer said. The kingdom has idled about 4 million barrels a day, according to the oil ministry.

Long Haul

“We’re prepared for the long haul,” Saudi Aramco CEO Khalid al-Falih said in an interview yesterday in Jeddah, on the Red Sea coast of Saudi Arabia. “We have the excess capacity in case it’s needed, but we also have the ability to sustain ourselves with production levels similar to what we see today at prices similar to what we have seen so far.”

Brent crude for November settlement rose $1.84, or 2.7 percent, to end the session at $70.53 a barrel on the London- based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 331,246 contracts as of 2:52 p.m. in New York. Volume totaled 580,080 contracts yesterday, 7.4 percent higher than the average over the past three months. Open interest was 1.15 million contracts, the lowest since Aug. 20. 

Source: Bloomberg.com (by Mark Shenk)

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