Oil Extends Gains After Obama Pledges Spending Boost for U.S.

Dec. 9 (Bloomberg) -- Crude oil extended its gains after rallying for the first day in seven yesterday on President-elect Barack Obama’s pledge to revive the economy with the biggest U.S. public works program in a half century.

Commodities, including oil, copper and corn, climbed on speculation spending on roads, bridges and repairing school buildings will boost raw material demand. Congress and President George W. Bush also are close to agreeing on a $15 billion rescue of U.S. automakers that may be signed this week.

“The markets are cheered by the move to bail out the automobile industry and the emphatic statements from the Obama team that are pointing to a massive stimulus package,” said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York.

Crude oil for January delivery rose 17 cents, or 0.4 percent, to $43.88 a barrel at 10:28 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, futures increased $2.90, or 7.1 percent, to $43.71 a barrel. They touched $40.50 on Dec. 5, the lowest since Dec. 13, 2004. Prices have fallen 70 percent since reaching a record $147.27 in July.

Obama, in a television interview Dec. 7 on NBC, reiterated his commitment to the biggest investments in the nation’s infrastructure since President Dwight D. Eisenhower created the interstate highway system in the 1950s. The U.S. president-elect takes office on Jan. 20.

General Motors

A proposal unveiled yesterday by congressional Democrats would require the president to appoint a person or board to oversee long-term restructuring of the auto industry as a condition for receiving federal aid. General Motors Corp., Ford Motor Co. and Chrysler LLC would be eligible for loans.

White House and congressional leaders said a final accord was likely yesterday and the House and Senate will return for special sessions this week to vote on the package.

Stocks rallied worldwide, led by commodity producers, on Obama’s pledge to increase infrastructure spending. The Dow Jones Industrial Average rose 298.76, or 3.5 percent, to 8,934.18. The Standard & Poor’s 500 Index increased 33.63 points, or 3.8 percent, to 909.70.

Last week, oil fell the most since 1991 and metal prices slumped after economic data showed the recession is getting worse. The U.S. economy lost 533,000 jobs in November, bringing job losses this year to 1.91 million.

Copper, Corn

“The main reason oil and most other commodities are up today is the strong rally in equities,” said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois, said yesterday. “I wouldn’t read too much into this move. After oil fell 25 percent last week, you would expect a correction.”

Copper futures for March delivery rose 1 cent, or 0.7 percent, to $1.5080 a pound on the Comex division of Nymex. Yesterday, they added 12.45 cents, or 9.1 percent, to settle at $1.498 a pound, the biggest one-day increase since Oct. 29.

Corn futures for March delivery rose 20.75 cents, or 6.7 percent, to settle at $3.30 a bushel yesterday on the Chicago Board of Trade.

The Reuters/Jefferies CRB Index of 19 raw materials climbed 5.2 percent to 219.36 yesterday. The gauge lost 54 percent since reaching a record in July as the credit crunch choked worldwide growth.

Natural gas futures in New York fell for a fifth day after Dow Chemical Co., the largest U.S. chemical maker, said it plans to shut plants and cut jobs because of declining sales. Gas was up 3.4 cents, or 0.6 percent, to $5.600 per million British thermal units at 10:08 a.m. in Sydney. It fell 17.6 cents, or 3.1 percent, yesterday to settle at $5.566 per million in New York.

Falling Dollar

“It’s the Obama magic,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “Talk of stimulus and bailout are giving most commodities a boost. There are also rumors that OPEC will enact a large cut at the Dec. 17 meeting.”

Libya’s top oil official, Shokri Ghanem, said yesterday that the Organization of Petroleum Exporting Countries should make a “substantial” output cut at its meeting in Algeria.

Saudi Arabian Oil Co. announced yesterday it will reduce crude oil supplies to Japan in January for a second month. Saudi Aramco is the world’s largest state oil company.

“Prices should continue to firm up as we approach the meeting,” said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut. “I think there will be further actions taken by the Saudis and the rest of the cartel because they don’t want to see further declines.”

OPEC pumps more than 40 percent of the world’s oil and agreed to cut daily output 1.5 million barrels in October as prices slumped and inventories rose. Chakib Khelil, OPEC president, said on Dec. 6 that the group may make a “severe” reduction in production to stem the 70 percent decline in prices from July’s record.

Brent crude oil for January settlement rose $3.68, or 9.3 percent, to settle at $43.42 a barrel on London’s ICE Futures Europe exchange.