Oil Trades Near $73 After Rising on Declines in U.S. Supplies

Dec. 17 (Bloomberg) -- Oil traded near $73 a barrel in New York after rising the most in a month as a government report showed a decline in crude and distillate supplies in the U.S., the world’s biggest energy consumer.

Oil rose 2.8 percent yesterday after the Energy Department said crude inventories declined last week to the lowest since Jan. 9. Distillate stocks, a category that includes heating oil and diesel, fell 2.95 million barrels to 164.4 million. Prices also gained as Iran tested a medium-range missile, drawing condemnation from the U.S. and U.K.

“It was distillate that charged the way,” said Richard A. Ilczyszyn, a senior market strategist with Lind-Waldock & Co. in Chicago. “The inventories were the icing on the cake” in a market poised to rally after falling to a two-month low this week, he said.

Crude oil for January delivery traded at $72.85 a barrel, up 19 cents, in electronic trading on the New York Mercantile Exchange at 10:18 a.m. Sydney time. Yesterday, the contract rose $1.97 to $72.66. Futures dropped as low as $68.59 this week, the lowest point in a nine-day decline.

Supplies of crude oil fell 3.69 million barrels last week to 332.4 million. They were expected to decline by 2 million barrels, according to the median of 17 estimates in a Bloomberg News survey.

Oil climbed on “reduced stockpiles in the U.S. and geopolitical concerns in the Middle East,” David Taylor, a market analyst at CMC Markets in Sydney, said in a research note.

Iranian Missile

The test of the upgraded Sejil-2 surface-to-surface missile “does make the case for us moving further on sanctions,” U.K. Prime Minister Gordon Brown said. Mike Hammer, spokesman for President Barack Obama, called the test worrying and said it would reinforce the concerns of the international community.

Imports of crude oil in the U.S. declined 365,000 barrels to 7.77 million barrels a day, the Energy Department report showed. It was the lowest since September 2008, when ports were shut because of hurricanes Gustav and Ike.

Refineries operated at 80 percent of capacity last week, down 1.1 percentage points from the prior week, the report showed. Analysts surveyed by Bloomberg News forecast a 0.3- percentage-point gain.

Gasoline inventories gained 879,000 barrels to 217.2 million barrels last week. They were forecast to rise 1.25 million barrels, based on the median estimate of 18 analysts in the Bloomberg survey.

Brent crude for January settlement rose $1.50, or 2.1 percent, to settle at $73.55 a barrel on the London-based ICE Futures Europe exchange. The contract expired yesterday. The more widely traded February contract gained $1.42, or 1.9 percent, to $74.29 a barrel.

Dollar Trades Near 10-Week High as Economic Outlook Improves

Dec. 17 (Bloomberg) -- The dollar traded near a 10-week high against the euro after the Federal Reserve said deterioration in the labor market is “abating,” stoking optimism about the outlook for the U.S. economy.

The greenback rose against 12 of its 16 major counterparts before reports forecast to show U.S. initial jobless claims slowed and a gauge of the outlook for the world’s largest economy rose. The Fed said the economy is strengthening and most of its special liquidity facilities will expire on Feb. 1, 2010.

“An improvement of the labor market enhances confidence in the U.S. economy,” said Akio Yoshino, chief economist in Tokyo at Societe Generale Asset Management (Japan) Co., a unit of France’s third-largest bank. “The dollar will fare well.”

The dollar was at $1.4525 per euro at 9:59 a.m. in Tokyo from $1.4531 in New York yesterday. It climbed on Dec. 15 to $1.4504, the highest level since Oct. 2. The dollar traded at 89.95 yen from 89.78 yesterday when it advanced to 89.99, the strongest level since Dec. 7. The euro bought 130.64 yen from 130.46.

U.S. initial jobless claims fell to 465,000 last week from 474,000 in the week ended Dec. 5, according to a Bloomberg News survey before the report is released today.

Leading Indicators

The Conference Board’s index of U.S. leading indicators, a gauge of the outlook for the next three to six months, rose 0.7 percent in November, following a 0.3 percent gain in the previous month, according to a separate Bloomberg survey before the release of the indicator today.

“Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit,” the Federal Open Market Committee said in its policy statement yesterday after meeting in Washington. “Businesses are still cutting back on fixed investment” and “remain reluctant to add to payrolls.” Deterioration in the labor market is “abating.”

Policy makers held the target rate for overnight lending between banks at zero to 0.25 percent, a decision forecast by all 98 economists in a Bloomberg survey.

“There’s some acknowledgement of improved economic conditions including the labor market,” said Ray Attrill, global research director at Forecast Ltd. in Sydney. “We still think there’s a signal that informs the market there will be some Fed balance sheet shrinkage coming through in 2010,” a supportive factor for the dollar, he said.

Bullish on Dollar

The dollar has appreciated 4 percent against the euro from this year’s weakest level of $1.5144 on Nov. 25 as government figures showed the unemployment rate fell last month to 10 percent and retail sales rose more than forecast. Before the payrolls report on Dec. 4, the greenback had fallen from the 2009 peak reached in March as investors bought higher-yielding assets funded with dollars.

Investors turned bullish on the dollar for the first time since March as the U.S. economy showed evidence of a sustained recovery, a survey of Bloomberg users indicated.

Sentiment toward the dollar rose to 51.99 in December, according to the survey. The measure is a diffusion index, meaning a reading above 50 indicates Bloomberg users expect the dollar to strengthen. The reading was last above 50 in March, when it reached 53.41.

“With the key driving force gradually shifting toward interest-rate differentials from risk sentiment, good economic data may begin to support the dollar more directly,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo.