Oil rebounds on weaker dollar, rising stocks

AP News
Posted: Oct 20, 2010 4:30 PM
Oil rebounds on weaker dollar, rising stocks

Oil bounced back Wednesday as a weaker dollar, strong corporate earnings and rising stock prices brought buyers back, a day after China's surprise interest rate hike caused a sharp drop in prices.

Benchmark crude for November delivery rose $2.28 to settle at $81.77 a barrel on the New York Mercantile Exchange. That contract expired Wednesday and trading moved to the December contract, where oil climbed by $1.38 to settle at $82.54 a barrel.

Meanwhile, retail gasoline prices continued to climb, with the national average at $2.831 for a gallon of regular, according to AAA, Wright Express and the Oil Price Information Service. It's up 10.5 cents from a month ago and 25.4 cents from a year ago.

For weeks traders have dismissed the fact that oil and gasoline supplies remain plentiful, focusing instead on the movement of the dollar and stock markets as they buy and sell oil for future delivery.

The dollar fell against other currencies Wednesday. Since oil is priced in dollars, a weaker dollar means traders who buy with foreign currencies can get more for their money.

At the same time, stocks rose on strong earnings reports from airlines and manufacturers, including Delta and Boeing Co. The Dow Jones Industrial Average closed up over 129 points. The broader Standard and Poor's 500 index and the Nasdaq composite closed higher as well.

The Energy department said commercial crude inventories rose less than analysts expected, adding 700,000 barrels to 361.2 million barrels. Gasoline inventories grew by 1.2 million barrels to 219.3 million barrels. Distillates, which include heating oil and diesel, fell 2.2 million barrels to 170.1 million barrels.

Platts Senior Oil Analyst Linda Rafield said crude stocks rose as oil imports increased on the East and West Coast. She also noted that oil demand fell. The four-week average was 89,000 barrels per day below the same week last year.

The government's report was overshadowed by what traders see in stocks and currencies, energy analyst Jim Ritterbusch said.

"The fundamentals have been bearish for a long time throughout this entire year and they're simply not going to determine whether we go up or down here by a few dollars," he said. "If the stock market's going up, it's conjuring up images of a better economy going forward and that spells better oil demand."

Many traders are waiting to see if the Federal Reserve will take up new stimulus measures next month to help boost the economy. If the Fed decides to put more money into the economy, such as by purchasing Treasury bonds, it could push the dollar lower and oil prices higher.

Ritterbusch said he expects oil prices to remain choppy until traders get a better idea of what the Fed will decide.

In other Nymex trading in November contracts, heating oil rose 6.55 cents to settle at $2.2548 a gallon, gasoline gained 3.43 cents to settle at $2.0826 a gallon and natural gas added 2.6 cents to settle at $3.539 per 1,000 cubic feet.

In London, Brent crude rose $2.50 to settle at $83.60 a barrel on the ICE Futures exchange.


Associated Press writers Pablo Gorondi in Hungary and Alex Kennedy in Singapore contributed to this report.