Crude Oil Declines to Seven-Week Low as the Dollar Surges

Dec. 4 (Bloomberg) -- Crude oil fell to a seven-week low as the dollar surged on an unexpected drop in the U.S. unemployment rate, curbing the appeal of commodities to investors.

Prices decreased as the U.S. currency strengthened the most against the euro in more than five months. Oil advanced as much as 1.9 percent earlier in the session after the Labor Department reported that the jobless rate slipped to 10 percent in November. Saudi Arabia’s oil minister said today that “right now the price is OK” and that supplies are falling.

“The jobs report is encouraging and points to improving demand,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Ordinarily, evidence of a stronger economy would be bullish for oil, but the situation is more complicated now. The strength of the dollar has hedge funds selling commodities.”

Crude oil for January delivery fell 99 cents, or 1.3 percent, to $75.47 a barrel on the New York Mercantile Exchange, the lowest settlement price since Oct. 14. Prices declined 0.8 percent this week and are up 69 percent this year.

The improving labor market indicates the deepest U.S. recession since the 1930s may have ended, though it’s too soon to say precisely what month it stopped, Robert Hall, who heads the National Bureau of Economic Research’s Business Cycle Dating Committee, said in an interview. The group is charged with determining when recessions begin and end.

“The employment figures bode well for demand,” said John Kilduff, partner at Round Earth Capital, a New York-based hedge fund that focuses on food and energy-commodity investments. “It’s going to take some time for us to wring out the dollar trade. Once we do, the market will return to trading on the fundamentals.”

Dollar Rally

The dollar rallied on speculation that an improving economy will allow the Federal Reserve to lift interest rates. The greenback traded at $1.4828 against the euro, up 1.5 percent from $1.5053 yesterday. It’s the biggest gain for the U.S. currency since June 15.

“Commodities have been buoyed by the dollar’s weakness,” Kilduff said. “Now that the dollar’s prospects are improving they are taking a hit.

Gold futures for February delivery tumbled $48.80, or 4 percent, to end the session at $1,169.50 an ounce on the Comex division of Nymex. It was the biggest drop for a most-active contract since Dec. 1, 2008. The Reuters/Jefferies CRB Index of 19 commodities declined 1.1 percent to 273.60.

“Right now the price is OK, between $70 and $80, close to the target, almost $75,” Saudi Oil Minister Ali al-Naimi said in Cairo before a meeting of Arab petroleum ministers. Inventories of oil “are coming down,” he said.

OPEC Meeting

The Organization of Petroleum Exporting Countries will review production targets at a meeting in Angola on Dec. 22. The 12-member group kept quotas steady at three meetings this year.

“I don’t think any change will be taking place,” Libya’s top oil official, National Oil Corp. Chairman Shokri Ghanem, told reporters in Cairo. “We are going to call on member countries to stick to levels agreed by OPEC.”

The 11 countries with production quotas pumped 26.5 million barrels of crude oil a day in November, 1.655 million above their collective target, a Bloomberg News survey showed. Output from all 12 members, including Iraq, rose to the highest level in 11 months.

“Any change in production targets at the Dec. 22 meeting is looking unlikely,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “Meanwhile, output continues to rise a bit each month. With prices at this level, they feel comfortable leaking more oil onto the market.”

Nigerian Output

Nigeria is among the countries that are flouting their official limits the most. Africa’s biggest producer boosted oil production to 2.6 million barrels a day, from 2.4 million last week, Emmanuel Egbogah, a presidential adviser, told state-owned NTA television today. That’s about 900,000 barrels a day more than its OPEC allocation.

“If the Nigerians are really pumping 2.6 million barrels a day, it would be very bearish for the market,” Mueller said. “They have never had the best record of compliance. This could lead to some sharp words at the next OPEC meeting.”

Brent crude oil for January settlement declined 84 cents, or 1.1 percent, to end the session at $77.52 a barrel on the London-based ICE Futures Europe exchange. Brent settled $2.05 higher than New York oil, the biggest premium since Aug. 19.

Oil may decline next week on speculation fuel inventories are sufficient to meet demand, a Bloomberg News survey showed. Twenty-one of 41 analysts and traders, or 51 percent, said futures will drop through Dec. 11. Five respondents, or 12 percent, forecast the market will rise, and 15 said prices will be little changed.

Oil volume in electronic trading on the Nymex was 646,779 contracts as of 3:05 p.m. in New York. Volume totaled 650,285 contracts yesterday, the most since Nov. 12 and 13 percent more than the average of the past three months. Open interest was 1.22 million contracts.