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Crude Oil Rises as Dollar Weakens to Lowest Level This Year

Crude oil rose...

Crude oil rose as the dollar dropped to the lowest level against the euro this year before OPEC’s anticipated announcement today that its members will maintain output targets, according to Bloomberg.

Oil has climbed 4.8 percent in New York in the past two days as the falling U.S. currency spurred investors’ demand for dollar-priced assets to hedge against inflation. The Organization of Petroleum Exporting Countries has a consensus about not changing output quotas at today’s meeting, Kuwaiti Oil Minister Sheikh Ahmed al-Abdullah al-Sabah said today.

“The oil market is going to remain focused on the dollar and what other commodities do,” said Phil Flynn, vice president of research at PFGBest, a Chicago-based brokerage. “We are all expecting OPEC to celebrate where prices are and pay lip service to better compliance in the future.”

Crude oil for October delivery rose 21 cents, or 0.3 percent, to $71.31 a barrel at 3:02 p.m. on the New York Mercantile Exchange, the highest settlement price since Aug. 28.

Prices extended gains in electronic trading after the American Petroleum Institute reported that U.S. stockpiles declined 7.22 million barrels to 336.3 million last week, the biggest drop since the week ended Sept. 5, 2008. Oil climbed 44 cents, or 0.6 percent, to $71.54 a barrel at 4:35 p.m.

The U.S. currency dropped 0.5 percent to $1.4544 per euro from $1.4478 yesterday. It touched $1.4601, the weakest since Dec. 18.

‘Attractive’ Commodities

“Commodities that are priced in dollars are looking a lot more attractive,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market is poised to move higher in anticipation that demand will increase because of the improving economy and due to normal seasonal gains that occur during the Northern Hemisphere winter.”

Global fuel consumption peaks during the winter in Asia and Europe.

“Oil has been acting more as an investment asset rather than as a consumption asset,” Harry Tchilinguirian, senior oil market analyst at BNP Paribas SA in London, said today on Bloomberg Radio. “For now, anyway, the short-term outlook for the dollar is weak, and of course that supports oil.”

OPEC members have said the 12-member group should keep its output target unchanged at 24.845 million barrels a day when it gathers today at its Vienna headquarters.

“Yes,” OPEC President Jose Botelho de Vasconcelos responded when asked by Bloomberg television whether OPEC has a done deal to keep output unchanged at the meeting. “The situation is balanced” and the oil price “is at a level that is satisfactory to investors, producers and consumers,” said Botelho de Vasconcelos, who is also Angola’s oil minister.

Non-OPEC Producers

Some non-OPEC producers, such as Russia and Brazil, have increased oil output as OPEC reduced its supply, taking advantage of higher prices.

“We don’t care about them, let them benefit,” Saudi Arabian Oil Minister Ali al-Naimi said today. “We are benefiting. We can export a lot more, we just don’t want to.”

OPEC agreed late last year to cut production targets by 4.2 million barrels a day after prices crashed more than $100 a barrel from a record set in July 2008. Oil dipped to $32.40 in December before recovering this year.

“The OPEC meeting is a dull story,” Edward Morse, head of economic research at LCM Commodities LLC, said on Bloomberg Television today from Vienna. “It’s a story about a rollover because everyone is happy in OPEC. They are delighted prices aren’t at $33 a barrel like they were in December, January and February.”

Brent crude oil for October settlement rose 41 cents, or 0.6 percent, to $69.83 a barrel on the London-based ICE Futures Europe exchange.

Iranian Nuclear Program

Iran’s nuclear work is approaching a “dangerous and destabilizing” point at which OPEC’s second-biggest oil producer could build a bomb, Ambassador Glyn Davies, the U.S. envoy to the United Nations International Atomic Energy Agency said. The Persian Gulf country is under three sets of UN sanctions for refusing to halt uranium enrichment.

“It looks like we are headed for a collision course on this issue,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “If things escalate, oil is going to go up a lot. This would break the correlation between the markets; the dollar would rise, equities would have a sharp drop and both oil and gold would move higher.”

An Energy Department report may show U.S. crude and gasoline supplies fell last week, a Bloomberg News survey showed. Oil inventories dropped 1.85 million barrels in the week ended Sept. 4, according to the median of 16 analyst responses. Gasoline stockpiles probably decreased 1.5 million barrels.

Record Stockpiles

Inventories of distillate fuel rose 1 million barrels, the survey showed. Stockpiles in the week ended Aug. 28 were at the highest level since October 1983.

The department is scheduled to release its Weekly Petroleum Status Report in Washington tomorrow, a day later than usual because of the Labor Day holiday on Sept. 7.

Oil volume in electronic trading on the Nymex was 585,810 contracts as of 3:09 p.m. in New York. Volume totaled 700,499 contracts yesterday, 31 percent higher than the average over the past three months and the most since Aug. 19. Open interest was 1.18 million contracts.

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