Oil Falls From a 7-Month High as Dollar Gains on Jobs Report

June 5 (Bloomberg) -- Crude oil fell from a seven-month high after the dollar strengthened on a government report that the U.S. lost fewer jobs in May than forecast.

Oil declined as the U.S. currency rose against the euro and yen, reducing demand for commodities as an alternative investment. Prices climbed above $70 for the first time since November after the Labor Department’s payroll report signaled that the worst of the economic slump may be over.

“The jobs data gave everything a boost until the dollar reversed, which caused oil to back off,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “There may be a rethinking of the jobs data. It was better than expected, but it’s still bad.”

Crude oil for July delivery fell 37 cents, or 0.5 percent, to settle at $68.44 a barrel at 2:50 p.m. on the New York Mercantile Exchange. Futures touched $70.32 today, the highest intraday price since Nov. 5. Oil increased 3.2 percent this week and is up 53 percent this year.

The dollar advanced 1.5 percent to $1.3964 per euro from $1.4183 yesterday. The U.S. currency gained 2.3 percent to 98.79 yen, from 96.58 yesterday. It touched 98.89, the highest level since May 11.

“The dollar has been a powerful influence on commodity prices recently,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York. “The bias remains for higher prices. As long as economic indicators are pointing in the right direction this market is going to keep moving higher.”

U.S. Inventories

U.S. crude oil supplies rose last week as fuel consumption tumbled, an Energy Department report on June 3 showed.

“The latest upward move in oil prices was mainly driven by an improvement in sentiment rather than fundamentals,” said Eliane Tanner, an analyst at Credit Suisse Group AG in Zurich. “U.S. inventories are increasing again and U.S. demand destruction is going on. This is, in our view, a major risk for crude-oil prices in the near-term.”

Stockpiles climbed 2.9 million barrels to 366 million, according to the Energy Department report. The gain occurred as imports jumped 9.9 percent and refineries increased operating rates to the highest in six months. Fuel demand fell 900,000 barrels to 17.7 million barrels a day last week, the lowest since May 1999.

IEA View

Oil demand may not return immediately after an economic recovery, according to Nobuo Tanaka, executive director of the International Energy Agency. It’s essential to avoid an energy crunch in the next two decades and the main problem is a lack of investment, he said today at a conference in St. Petersburg. The Paris-based IEA advises 28 developed countries on energy policy.

The IEA, Organization of Petroleum Exporting Countries and U.S. Energy Department cut their projections for 2009 global crude-oil demand in reports last month.

“Oil demand is always higher during the second half of the year than in May, with the one exception of last year,” Eagles said. “If we have a 500,000 barrel-a-day surplus now, that will turn into a deficit even if we don’t get a V-shaped recovery, especially if OPEC continues to hold things tight.”

A V-shaped recession is one with a swift decline and recovery.

OPEC agreed at three meetings last year that the 11 members with quotas would cut output by 4.2 million barrels a day. The 11, all except Iraq, pumped 25.76 million barrels a day in May, 915,000 more than their target, according to a Bloomberg News survey. Production is down 3.46 million barrels since September when the first cut was announced.

Price Outlook

Oil may decline next week on speculation that U.S. stockpiles will increase. Twenty-three of 34 analysts surveyed by Bloomberg News, or 68 percent, said futures will fall through June 12. It’s the most bearish response since February 2008. Seven respondents, or 21 percent, forecast that oil prices will rise and four said the market will be little changed.

Brent crude for July delivery declined 37 cents, or 0.5 percent, to end the session at $68.34 a barrel on London’s ICE Futures Europe exchange. Futures touched $69.91, the highest intraday price since Oct. 21.

Crude oil volume in electronic trading on the Nymex was 583,278 contracts as of 3:07 p.m. in New York. Volume totaled 600,760 contracts yesterday, 19 percent higher than the average over the past three months. Open interest was 1.24 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.