Oil Rises as Gold Climbs to Record on Bank’s Bullion Purchase

Nov. 3 (Bloomberg) -- Crude oil rebounded from a two-week low as gold surged to a record in New York after India’s central bank purchased 200 metric tons of the metal from the International Monetary Fund.

Oil climbed 1.9 percent as the Indian gold purchase bolstered the appeal of commodities. Crude also got a technical bounce after touching $76.55 a barrel, the lowest intraday price since Oct. 15. When futures don’t drop further after reaching a new low, technical traders see it as a sign to purchase the contract.

“Oil is turning into a financial asset, the same type of thing as gold,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis.

Crude oil for December delivery climbed $1.47, or 1.9 percent, to settle at $79.60 a barrel at 3:03 p.m. on the New York Mercantile Exchange. Oil has risen 78 percent this year.

Prices were down from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles declined as supplies of distillate fuel, a category that includes heating oil and diesel, increased last week. December oil was up $1.27, or 1.6 percent, to $79.40 a barrel in electronic trading at 4:35 p.m.

Oil fell as much as 2 percent earlier today on the announcement that Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc received a second bailout from U.K. taxpayers, signaling that the global economy may take longer to recover from the worst recession since the 1930s.

Testing Support

“Oil tested support in the $76.50 area and failed to break through,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “From a technical standpoint, this was a sign that prices are moving higher.”

Gold futures for December delivery rose $30.90, or 2.9 percent, to $1,084.90 an ounce on the Comex division of the New York Mercantile Exchange, a record settlement price. The contract touched $1,088.50, the all-time high intraday price. The previous record was $1,072 an ounce, set on Oct. 14.

The Reuters/Jefferies CRB Index of 19 commodities advanced 1.1 percent to 276.43.

High inventories and weak demand have been shrugged off by investors over the past two years as they moved into commodities for better returns than in other markets, said Edward Morse, head of economic research at LCM Commodities LLC.

“You can’t look at fundamentals to explain why prices have gone up to levels where they are at now,” Morse said in a speech prepared for the Asia-Pacific Petroleum Conference in Singapore today. “The physical oil market is showing an abundance of supply, and even an oversupply of product and crude oil inventories, which should weigh heavily on prices.”

‘Overwhelming’ Evidence

There is “overwhelming” evidence that oil’s gain this year has been caused by the flow of funds into commodities rather than a cut in supply by OPEC and a global economic recovery, Morse said.

“One of the main lessons of the last five years is the new role played by global liquidity and the search for higher returns,” he said.

Crude oil has outperformed stocks and bonds this year as it heads for the seventh annual gain in eight years. The Standard & Poor’s 500 Index has risen 15 percent in 2009 through yesterday while returns on the benchmark 10-year U.S. Treasury note are down 5.7 percent.

The Organization of Petroleum Exporting Countries agreed to reduce production targets by 4.2 million barrels to 24.845 million barrels a day last year to bolster prices.

An Energy Department report tomorrow is forecast to show that U.S. crude oil and gasoline stockpiles rose last week as supplies of distillate fuel dropped.

U.S. Inventories

Stockpiles of crude oil rose 1.5 million barrels in the week ended Oct. 30, according to the median of 16 estimates by analysts surveyed by Bloomberg News. Gasoline supplies probably increased 400,000 barrels, the survey showed. Distillate fuel inventories declined 1 million barrels.

Gasoline for December delivery increased 1.01 cents, or 0.5 percent, to end the session at $2.0004 a gallon in New York. Heating oil for December delivery climbed 2.73 cents, or 1.3 percent, to end the session at $2.0733 a gallon.

Brent crude for December settlement increased $1.56, or 2 percent, to end the session at $78.11 a barrel on the London- based ICE Futures Europe exchange.

Oil volume in electronic trading on the Nymex was 524,786 contracts as of 3:14 p.m. in New York. Volume totaled 555,171 contracts yesterday, 2.8 percent lower than the average over the past three months. Open interest was 1.2 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.