Bloomberg News

Crude Rises as Dollar Weakens After Moody’s Downgrade Warning

June 02, 2011

June 2 (Bloomberg) -- Oil rose as the dollar weakened after Moody’s Investors Service said it may place the U.S. government’s rating under review for possible downgrade.

Crude advanced 11 cents as the euro extended gains following the Moody’s announcement that it may review the rating if there is no progress on increasing the debt limit. Futures fell earlier after a U.S. government report showed an unexpected increase in inventories to the highest level in two years. Crude reversed in the last 30 minutes of floor trading.

“We seem to follow the dollar’s weakness again,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “The storage data was pretty negative, but the market found some support down near $98.”

Crude oil for July delivery settled at $100.40 a barrel on the New York Mercantile Exchange after falling 1.8 percent to $98.46. Prices have gained 9.9 percent this year.

Brent crude for July delivery rose $1.01, or 0.9 percent, to $115.54 a barrel on the London-based ICE Futures Europe exchange.

The euro advanced 1.1 percent to $1.4481 as of 3:34 p.m. in New York after climbing to $1.4514, the strongest level since May 6. The euro has gained 8.2 percent this year versus the dollar. A decline in the U.S. currency makes dollar-priced assets such as crude appear cheaper to investors using other currencies.

“The heightened polarization over the debt limit has increased the odds of a short-lived default,” New York-based Moody’s said in a statement today. “If this situation remains unchanged in coming weeks, Moody’s will place the rating under review.”

Debt Limit

A bill that would raise the U.S. debt limit by $2.4 trillion failed to win House passage May 31 in a vote Democrats said was rigged to ensure its defeat.

The euro also strengthened after German Chancellor Angela Merkel said she’s committed to the shared currency. Europe’s policy makers are considering asking investors to reinvest in Greek debt when existing bonds mature.

Oil fell earlier after the Energy Department reported that crude inventories climbed 2.88 million barrels to 373.8 million in the week ended May 27, the highest level since May 2009. Stockpiles were forecast to decline by 1.6 million barrels, according to the median of 13 analyst estimates in a Bloomberg News survey.

“The build in crude oil was the largest surprise in the data,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The report showed the gasoline market is well-supplied.”

Fuel Supplies

Gasoline inventories increased for a fourth week, climbing by 2.55 million barrels to 212.3 million, the Energy Department said. Analysts expected a gain of 900,000 barrels, according to the Bloomberg survey.

Distillate stockpiles, which include diesel and heating oil, fell 976,000 barrels to 140.1 million, the lowest level since April 2009. Analysts forecast a withdrawal of 250,000 barrels.

Heating oil futures gained 3.52 cents, or 1.2 percent, to settle at $3.0439 a gallon on the Nymex.

“Refiners are not making distillates because they intentionally want to bring inventories down to a more manageable, healthier level and because they don’t see demand,” said Evans.

Distillate demand for the four weeks ended May 27 averaged 3.81 million barrels a day, 0.3 percent lower than the four weeks ended May 20, and 5 percent less than a year earlier.

Cushing Supplies

Inventories at Cushing, Oklahoma, the delivery point for West Texas Intermediate oil traded on the Nymex, dropped 159,000 barrels to 39.9 million, department data showed. The rate at which refineries operated fell to 86 percent from the previous week’s 86.3 percent.

The Organization of Petroleum Exporting Countries will respond at its June 8 meeting in Vienna if there is demand for more oil production, Saudi Arabian Oil Minister Ali Al-Naimi said.

The Middle East kingdom has 3 million to 3.5 million barrels a day of spare production capacity, Al-Naimi told reporters today in Krakow, Poland.

OPEC’s output rose 165,000 barrels, or 0.6 percent, to average 28.895 million barrels a day in May, according to a Bloomberg News survey of oil companies, producers and analysts. Saudi Arabia bolstered production by 75,000 barrels, or 0.8 percent, to 8.925 million barrels a day, the highest level since October 2008.

HSBC Holdings Plc said speculative trading may have added $30 a barrel to oil prices last month as a gain in futures holdings by commodities funds outweighed higher production by Saudi Arabia, OPEC’s biggest producer.

Oil volume in electronic trading on the Nymex was 725,752 contracts as of 3:35 p.m. in New York. Volume totaled 655,628 yesterday, 2.1 percent below the average of the past three months. Open interest was 1.51 million contracts.

--With assistance from John Detrixhe and Catarina Saraiva in New York, Marek Strzelecki in Warsaw. Editors: Joe Link, Dan Stets

To contact the reporter on this story: Moming Zhou in New York at Mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.


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