Related News:Energy Industry · Commodities .Crude Oil Increases for First Day in Three as Equities Gain, Dollar Falls

Bloomberg.com   |  September 8 2010 3:21 EDT

Crude oil rose for the first time in three days as equities gained and the dollar retreated against the euro, boosting the appeal of commodities as an alternative investment.

Oil increased as much as 1.8 percent as stocks climbed following improved demand for bonds from Portugal to Poland. Crude pared gains after the Federal Reserve said the U.S. economy showed “widespread signs of a deceleration” from mid- July through August.

“Equities and the dollar are kind of pushing things along,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “You’re starting to see a little more of the investment side in the market and the volumes are picking up after a slow August.”

Crude oil for October delivery rose 56 cents, or 0.8 percent, to $74.65 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Earlier, it touched $75.39. Prices have gained 5 percent in the past year.

The Standard & Poor’s 500 Index climbed 0.7 percent to 1,099.23, and the Dow Jones Industrial Average advanced 50.4 points, or 0.5 percent, to 10,391.09. Both benchmarks increased for the fifth time in six days.

U.S. stocks followed European equities higher after Portugal’s sale of bonds due in 2021 attracted bids for 2.6 times the amount offered, compared with a bid-to-cover ratio of 1.6 in the earlier March sale. An auction of five-year debt by Poland attracted the biggest demand since 2008, while Czech borrowing costs fell to a record low at a sale of three-year bonds.

Economic Signals

“The market climbs whenever there are any signs that the economy is recovering,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The 12 regional Fed banks reported the economy maintained its expansion, underscoring the Fed view that while the recovery from the worst recession in seven decades has cooled, the economy isn’t relapsing into a contraction.

Five regional banks reported “economic growth at a moderate pace,” two pointed to “positive developments or net improvements” and the remaining five said conditions were mixed or decelerating.

The dollar fell 0.5 percent against the euro. The U.S. currency traded at $1.274 per euro compared with $1.2682 yesterday in New York. The dollar strengthened 1.5 percent yesterday, its biggest single-day advance since Aug. 11.

Oil traders are showing increasing confidence that U.S. economic growth will rebound next year as they take advantage of the widening gap between current prices of crude and contracts for delivery six months from now.

Price Contango

The price advantage, or contango, to buy and hold crude more than doubled to $5.76 a barrel last month from $2.60 at the end of July, as contracts for October delivery fell 9.4 percent and March dropped 5.3 percent. ConocoPhillips hired the tanker TI Europe for storage in the Gulf of Mexico, according to data on the website of RS Platou A/S, an Oslo-based shipbroker.

The U.S. Energy Department cut its crude-oil price forecast for 2010 to $77.37 a barrel from $79.13 a barrel in August, according to its monthly Short-Term Energy Outlook, released today. Prices have averaged $77.88 a barrel this year, through yesterday’s settlement.

Brent crude oil for October settlement gained 40 cents, or 0.5 percent, to $78.14 a barrel on the London-based ICE Futures Europe exchange. Earlier, it touched $78.85 a barrel, the highest level since Aug. 11.

Brent Crude

Brent cost $3.49 more than Nymex futures. The spread was $3.65 a barrel yesterday, the widest between the most-active contracts on the New York and London exchanges since May 20.

“That’s a reflection of the high inventory levels here versus the U.K.,” said Matt Smith, a commodities analyst for Summit Energy in Louisville, Kentucky.

U.S. oil supplies were 11 percent above the five-year average in the week ended Aug. 27, the Energy Department reported last week. Analysts forecast stockpiles climbed for a third week through Sept. 3.

Oil inventories probably increased 1 million barrels last week, according to the median of 15 responses in a Bloomberg News survey before tomorrow’s Energy Department report. Data from the industry-funded American Petroleum Institute will be published later today. Both reports are a day late this week because of the Labor Day holiday on Sept. 6.

Demand for gasoline in the U.S. slid to the lowest level in six months last week, according to MasterCard Inc.’s SpendingPulse report today. Motorists bought an average 9.13 million barrels a day in the week ended Sept. 3, down 0.5 percent from the prior week. It was the lowest level since Feb. 12 and the third straight drop.

Oil volume in electronic trading on the Nymex was 564,232 contracts as of 2:14 p.m. in New York. Volume totaled 838,172 contracts yesterday, 35 percent above the average of the past three months. Open interest was 1.35 million contracts.