Crude Oil Rises as IEA Bolsters Demand Forecast, Dollar Slides

Sept. 11 (Bloomberg) -- Crude oil is poised for its first weekly gain in three after the International Energy Agency increased its 2010 estimate for global demand for a second consecutive month and the dollar traded near a nine-month low.

World oil demand is likely to average 85.7 million barrels a day next year, according to a monthly report from the Paris- based agency yesterday. That’s 450,000 barrels a day more than estimated in August. The dollar was near its lowest level since Dec. 18 against the euro on speculation reports today will show China’s factory output gained and exports dropped at a slower pace, reducing demand for the U.S. currency as a refuge.

“The IEA’s positive demand forecast is going to support prices,” said Chip Hodge, who oversees a $9 billion natural- resource bond portfolio as managing director at MFC Global Investment Management in Boston. “Demand is set to rise anyway because of the onset of winter.”

Crude oil for October delivery fell 2 cents to $71.92 a barrel on the New York Mercantile Exchange at 7:26 a.m. Singapore time. Prices have gained 5.7 percent this week and are up 61 percent this year.

The change in the forecast “is quite substantial,” Ian Fyfe, the head of the IEA’s oil industry and markets division, said in a telephone interview from Paris yesterday. “It is premised on stronger North American and Chinese demand. There are still a lot of question marks, in particular about industrial demand.”

The agency advises its 28 members on energy policy and was set up in response to the 1974 Arab oil embargo.

Buffeted Market

“The more dynamic emerging markets are leading this upward revision by the IEA,” said Harry Tchilinguirian, senior oil analyst at BNP Paribas SA in London. “What’s driving this market on a day-to-day basis is what other asset markets are doing. It’s buffeted between forex and equities.” The Standard & Poor’s 500 Index rose 1 percent to 1,044.14 and the Dow Jones Industrial Average increased 0.8 percent to 9,627.48.

Prices also advanced after U.S. oil inventories dropped more than expected and OPEC maintained output quotas.

The Organization of Petroleum Exporting Countries agreed to maintain output quotas at 24.845 million barrels a day and will urge members to adhere to their targets, OPEC Secretary-General Abdalla El-Badri said in a briefing yesterday.

OPEC’s decision to maintain current production targets “is quite sensible and we welcome this decision,” the IEA’s executive director, Nobuo Tanaka, told reporters in Lisbon yesterday. “The global economic situation is probably improving and we want to maintain it.”

Third Meeting

The OPEC meeting, which ended early yesterday in Vienna, was the third this year at which the group left production quotas unchanged. OPEC is urging members to adhere more closely to its output targets. The 11 members bound by quotas pumped 26.055 million barrels a day in August, according to a Bloomberg News survey, which indicates quota compliance of about 71 percent.

“OPEC is happy because it doesn’t have to do anything,” Hodge said. “Most people, both producers and consumers, seem to be content with prices at this level.”

Brent crude oil for October settlement increased 3 cents to end the session at $69.86 a barrel on the London-based ICE Futures Europe exchange.

U.S. stockpiles of crude oil fell 5.91 million barrels to 337.5 million, an Energy Department report showed. Supplies were estimated to decline by 1.85 million barrels, according to the median of 16 responses from analysts in a Bloomberg News survey.

Fuel Stockpiles

Gasoline inventories rose 2.07 million barrels to 207.2 million last week, the first gain in seven weeks, the department said. Supplies were forecast to drop by 1.5 million barrels, according to a Bloomberg News survey. Demand for the fuel fell 2.1 percent to an average 9.28 million barrels a day.

Stockpiles of distillate fuel, a category that includes heating oil and diesel, climbed 1.99 million barrels to 165.6 million, the highest since January 1983.

Gasoline for October delivery declined 2.45 cents, or 1.3 percent, to settle at $1.8036 a gallon in New York. Heating oil for October delivery fell 0.59 cent, or 0.3 percent, to end the session at $1.7885.