Oil hovers above $83 in Asia as weaker US dollar fuels gains in commodity prices

By Alex Kennedy, AP
Wednesday, October 6, 2010

Oil hovers above $83 in Asia amid US dollar slide

SINGAPORE — Oil hovered above $83 a barrel Thursday in Asia as a weak U.S. dollar fuels gains in commodity prices.

Benchmark oil for November delivery was up 22 cents to $83.45 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract added 41 cents to settle at $83.23 on Wednesday.

Oil has held above $80 over the last week amid a plunge in the dollar as investors anticipate that U.S. interest rates could head even lower if the Federal Reserve moves to buy Treasury bonds and takes other measures to lower long-term interest rates to boost the economy.

Dollar-based commodities, such as oil, becomes cheaper for investors with foreign currencies when the dollar drops. On Wednesday, the euro moved above $1.39 for the first time since February, while the yen struck a new 15-year high.

Wednesday’s gain in the oil price “can mostly be placed on weakness in the dollar against the euro,” energy consultant The Schork Report said.

Investors brushed off a jump in U.S. crude supplies, which suggests weak demand for fuel.

The Energy Information Administration said Wednesday that crude inventories increased last week by 3.1 million barrels and are now 7 percent above year-ago levels. Analysts expected a drop of 1.3 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

“The fundamental picture for crude was quite bearish,” The Schork Report said. “Put simply, we are producing more crude oil and refining less of it, the textbook definition of over supply.”

In other Nymex trading in November contracts, heating oil rose 0.62 cent to $2.314 a gallon and gasoline gained 0.32 cent to $2.151 a gallon. Natural gas was steady at $3.86 per 1,000 cubic feet.

In London, Brent crude rose 29 cents to $85.35 a barrel on the ICE Futures exchange.

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