Crude Oil Rises With Stocks, as Fed Says Economy ‘Leveling Out’

Aug. 13 (Bloomberg) -- Crude oil rose for a second day after U.S. equities increased and the country’s Federal Reserve said the economy is “leveling out,” bolstering speculation that energy demand will improve.

Oil gained as the Dow Jones Industrial Average added 1.3 percent and a drop in the dollar against the euro bolstered crude as an alternate investment. The Fed said it will slow the pace of its $300 billion program to buy U.S. Treasuries as the recession eases.

“With the Fed optimistic about the future, equities and energy markets received a push to trade higher,” said Mike Sander, an investment adviser with Sander Capital in Seattle. “The big trend is still for oil prices to go up as the economy stabilizes and rebounds in price.”

Crude oil for September delivery rose as much as 64 cents, or 0.9 percent, to $70.80 a barrel on the New York Mercantile Exchange. It was at $70.51 a barrel at 7:34 a.m. in Singapore. Yesterday the contract gained 1 percent to settle at $70.16 a barrel. Futures have climbed 58 percent this year.

Stocks rebounded from the market’s biggest drop in a month. The Standard & Poor’s 500 Index advanced 1.2 percent to 1,005.81, as of 4:07 p.m., and the Dow gained 120.16 points to 9,361.61.

“The market continues to trade on economic optimism and not supply and demand,” said James Cordier, a portfolio manager at OptionSellers.com in Tampa, Florida. “We had a much weaker dollar and a strong stock market today, and that brought buyers back in. The Federal Reserve said the economy is doing much better and the end is near on incredibly easy money.”

Dollar Falls

The dollar declined against most major currencies after the Fed said it will keep the interest rate “exceptionally low” for an extended period and wind down its purchases of Treasuries by the end of October.

The dollar traded at $1.4207 per euro at 8:10 a.m. in Tokyo from $1.4188 per euro yesterday in New York.

“The correlation between oil and currency markets, which had briefly gone out of style after the collapse of Lehman Bros., is back with a vengeance.” said Antoine Halff, deputy head of research at brokerage Newedge LLC in New York

Oil also rose as the International Energy Agency boosted its oil-demand outlook for this year and next.

The world will need an average of 85.25 million barrels of oil a day next year, 70,000 barrels more than previously estimated, the IEA, adviser to 28 nations, said in its report yesterday.

Outside emerging economies such as China, “industrial production growth remains firmly in negative territory, even though the pace of decline has somewhat slowed,” the IEA said in the report. “More worryingly, industrial production has seemingly not reached the bottom in the U.S.”

Weakness ‘For a Time’

The Fed said in yesterday’s statement that “economic activity is likely to remain weak for a time,” though it’s “leveling out.”

U.S. total daily fuel use averaged 18.9 million barrels in the past four weeks, down 3 percent from a year earlier, the Energy Department said yesterday in a weekly report. U.S. gasoline consumption typically drops after the Labor Day holiday in early September. American motor-fuel demand peaks during the summer months when people take vacations.

Refiners cut operating rates by 1.1 percentage points to 83.5 percent of capacity, the lowest since May.

Oil supplies increased by 2.52 million barrels to 352 million in the week ended Aug. 7, the Energy Department said. Inventories were forecast to climb by 1 million barrels, according to the median of analyst estimates in a Bloomberg News survey.

“Substantial resource slack” is likely to “dampen cost pressures” on prices of energy and other commodities, which have recently risen, the Fed said in its statement. That will likely keep inflation “subdued for some time.”

Brent crude oil for September settlement on London’s ICE Futures Europe Exchange added 43 cents, or 0.6 percent, to $72.89 a barrel.