Oil Set for Monthly Gain as Economy Recovers, Stockpiles Drop

Crude oil is poised for the biggest monthly advance since October as the U.S. economy starts to recover and fuel inventories fall. Federal Reserve Chairman Ben S. Bernanke said this week the U.S. economy is in a “nascent” recovery.

The U.K. emerged from recession in the fourth quarter at a faster pace than previously estimated, a report today showed. The amount of crude stored in tankers fell to 25 million barrels this month from levels of more than 80 million barrels last year, Poten & Partners said. Crude oil for April delivery was at $78.15 a barrel, down 2 cents, in electronic trading on the New York Mercantile Exchange as of 1:07 p.m. in London. A close at that level would mean an increase this month of 7.2 percent. “Oil has recovered because of the first signs of economic growth,” said Christopher Bellew, senior broker at Bache Commodities Ltd. in London.

“Stocks in floating storage have been diminishing.” The number of tankers used as floating storage for crude oil and diesel fell 20 percent in January, according to a Feb. 8 report from Simpson, Spence & Young Ltd., the world’s second- largest shipbroker. Declining stocks in Cushing, Oklahoma, where West Texas Intermediate is stored, and an increase this month in U.S. refinery utilization have also supported crude prices, said Torbjoern Kjus, an oil analyst at DnB Nor Markets. “It’s a sign fundamentals are looking better,” Kjus said by telephone from Oslo today. Increased Price Forecast Crude inventories at Cushing fell to the lowest level since November in the week to Feb. 19, the seventh straight weekly decline, according to the U.S. Department of Energy. JPMorgan Chase & Co. raised its 2010 forecast for crude oil traded in New York by 6.7 percent, partly because of reduced inventories in floating storage.

West Texas Intermediate crude oil will average $83.50 a barrel this year, JPMorgan said yesterday. That’s up from a previous forecast of $78.25. JPMorgan also increased its outlook for global oil demand by 110,000 barrels a day to 86.3 million barrels a day. The International Energy Agency on Feb. 11 raised its forecast for oil demand in 2010. The U.S. economy probably expanded at a 5.7 percent annual rate in the final three months of 2009, economists forecast the Commerce Department’s report on gross domestic product to show at 8:30 a.m. in Washington. The pace is unchanged from the initial estimate and the fastest in six years. OPEC Production Oil may fall next week as inventories increase and demand declines with the heating season nearing an end, a Bloomberg News survey showed. Twenty-three of 40 analysts and traders polled, or 58 percent, said prices will decline through March 5.

That’s the most bearish result since August. Ten respondents, or 25 percent, forecast futures will be little changed and seven said there will be an increase. Last week, 51 percent of analysts predicted there would be a price drop. The Organization of Petroleum Exporting Countries increased crude-oil production by 125,000 barrels a day, or 0.4 percent, to an average 29.17 million barrels a day, the highest level since December 2008, a Bloomberg News survey showed. Saudi Arabia led the gain, according to the survey of oil companies, producers and analysts. Brent crude for April settlement traded at $76.24 a barrel, 5 cents lower, as of 2:07 p.m. on the ICE Futures Europe exchange in London. .

Gold Advances to Record in New York, London After Jobs Data

Gold rose to a record in New York and London trading after a report showed U.S. employers cut more jobs than forecast in October, boosting demand for the metal as store of value.

Bullion is heading for a ninth consecutive annual gain and approaching $1,100 an ounce for the first time as investors seek to protect their wealth from the threat of inflation and the debasement of the U.S. currency. Payrolls fell by 190,000 workers last month, compared with a 175,000 drop anticipated by the median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today.

“There’s massive investment demand for gold at the moment,” said Christoph Eibl, co-founder of Zug, Switzerland- based Tiberius Group, which manages $1.8 billion. “I see more liquidity pumped in to lift the economies from bad news.”

December gold futures climbed as much as $9.70, or 0.9 percent, to $1,099 an ounce on the New York Mercantile Exchange’s Comex division and were up 0.1 percent at $1,090.30 by 8:56 a.m. local time. Immediate-delivery bullion added as much as 0.8 percent to $1,098.50 in London and was last little changed at $1,090.05.

The metal advanced to $1,095 in the morning “fixing” in London, an all-time high, from $1,089 at yesterday’s afternoon fixing. Some mining companies use fixings to sell production.

Global Recovery

“We believe the rally in gold prices will continue,” Michael Lewis, an analyst at Deutsche Bank AG in London, said in a report today. “Further advances in the gold price will be based on fresh lows in the U.S. dollar, central bank buying of gold” and “increasing inflation volatility.”

Sri Lanka’s central bank, which has been purchasing gold for the last seven months, will continue buying the metal as a hedge against volatility in currency markets, Ajith Nivard Cabraal, the central bank’s governor said today. Cabraal, speaking in Colombo, declined to say how much had been bought.

Sri Lanka held 5.3 metric tons of gold as of September, according to World Gold Council data.

Seventeen of 23 traders, investors and analysts surveyed by Bloomberg, or 74 percent, said bullion will rise next week. Four forecast lower prices and two were neutral.

“We are rather concerned about the crowded nature of the gold market, for everyone, everywhere is long of gold and bearish of the U.S. dollar,” economistDennis Gartman said in his Suffolk, Virginia-based Gartman Letter.

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, declined to 1,108.34 tons as of yesterday from 1,108.40 tons on Nov. 4, figures on the company’s Web site showed.

Among other precious metals for immediate delivery in London, silver fell 0.3 percent to $17.355 an ounce. Platinum dropped 0.5 percent to $1,349.50 an ounce and palladium was little changed at $330.15 an ounce.

Dollar Falls on Bets 10.2% Unemployment Will Keep Fed Rate Low

The dollar fell against the yen as the U.S. unemployment rate increased to 10.2 percent, reinforcing speculation the Federal Reserve will keep borrowing costs near zero into next year.

“Near-term, it adds to the uncertainty of the recovery, but it also reinforces how much longer we are going to need lower rates,” said David Tien, a money manager at Fischer Francis Trees & Watts in New York, with $19 billion in assets. “It solidifies the outlook for plentiful liquidity going into the middle of next year.”

Canada’s dollar dropped the most this month against the greenback as the nation’s employers unexpectedly eliminated jobs in October. Mexico’s peso and Norway’s krone fell against the yen on speculation the U.S. payrolls report will encourage traders to cut holdings of higher-yielding assets.

The dollar decreased 0.9 percent to 89.93 yen at 3:28 p.m. in New York, from 90.71 yesterday. The euro fell 1.1 percent to 133.44 yen, from 134.92. The dollar traded at $1.4838 per euro, compared with $1.4871.

The U.S. currency initially advanced as much as 0.4 percent versus the euro on reduced demand for riskier assets after the Labor Department reported that the unemployment rate exceeded 10 percent for the first time since 1983. The greenback erased its gain about an hour later on speculation the Fed will trail other central banks in raising borrowing costs.

Employers eliminated 190,000 jobs in October after a reduction of 219,000 in the previous month, the Labor Department reported. The median estimate of 84 economists in a Bloomberg survey was for a reduction of 175,000.

‘Risk On’

“The currency market will not pay attention to the data for an extended period,” said Steven Englander, chief U.S. currency strategist at Barclays Capital in New York. “The tone tends to remain risk on.”

The dollar was headed for a 1 percent weekly decline versus the euro after the Fed repeated at the end of a two-day policy meeting on Nov. 4 its intent to keep interest rates “exceptionally low” for “an extended period.” The central bank held the target rate for overnight lending at a range of zero to 0.25 percent.

Traders reduced bets that the Fed will increase borrowing costs in the first half of next year. Fed funds futures showed a 52 percent chance that policy makers would raise their benchmark by at least a quarter-percentage point by the June meeting. A week ago the likelihood was 63 percent.

ECB’s Stance

European Central Bank President Jean-Claude Trichet took a step yesterday toward removing emergency stimulus measures designed to end the recession, saying commercial banks won’t be offered unlimited 12-month loans next year. Policy makers kept the main refinancing rate at a record low 1 percent.

The dollar will decline to $1.50 versus the euro by year- end and remain there through the end of March, according to the median forecast of 48 economists in a Bloomberg survey.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro and yen, was little changed at 75.811 today. The gauge fell 0.2 percent on Oct. 2, when the Labor Department reported that U.S. employers eliminated more jobs in September than economists forecast.

The index slid about 15 percent from a three-year high reached in March, dropping on speculation the Fed will be slow in raising borrowing costs. The index decreased to a 14-month low of 74.94 on Oct. 21.

Outlook for Dollar

The dollar will resume its decline against counterparts as today’s payrolls report “confirms low rates in the U.S. until at least the second half of 2010,” said Achim Walde, head of currency management in Cologne, Germany, at Oppenheim KAG, where he helps oversee 3 billion euros ($4.3 billion).

The Canadian dollar weakened as much as 1.2 percent, the biggest decline since Oct. 30, before trading at C$1.0763 per U.S. dollar, compared with C$1.0651.

Employment fell by 43,200 last month, and the jobless rate rose to 8.6 percent, Statistics Canada said today in Ottawa. The median forecast of 22 economists in a Bloomberg survey was for a gain of 10,000 jobs.

The Mexican peso slid 1.9 percent to 6.70 yen and the krone fell 1.3 percent to 15.78 yen on speculation investors will reduce carry trades, in which they sell the currency of a nation with low borrowing costs and buy assets where returns are higher. Japan’s benchmark lending rate of 0.1 percent makes the yen a favored target for investors seeking to fund such trades.

Australia’s dollar rose for a third day against its U.S. counterpart as the Reserve Bank said the nation’s economy will expand at more than three times the pace forecast in August and signaled it will continue to lead the world in raising interest rates. The Aussie gained 0.7 percent to 91.62 U.S. cents.

Group of 20 finance chiefs will likely urge Asian nations to allow their currencies to appreciate when they meet this weekend in Scotland, according to UBS AG.

While exchange rates won’t be on the agenda, “many nations will seek to bring it up,” Geoffrey Yu, currency strategist in London at UBS, wrote in a research report to clients.

India rupee rises to near 2-wk high as stocks gain

he Indian rupee rose to its strongest in nearly two weeks on Friday as gains in the stock market strengthened expectations of capital inflows and the dollar's losses overseas lifted sentiment.

The partially convertible rupee ended at 46.81/82 per dollar, off a peak of 46.7350 which was its highest since Oct. 26, and about 0.4 percent stronger than Thursday's close of 47.0150/0250. "The market expects more reforms from the government after it decided to offload stakes in public sector companies. That should aid the rupee in the near-term," said a dealer with a foreign bank.

India on Thursday mandated more sales of shares by state-run firms and changed the rules on how it can use the proceeds, as it seeks to boost revenues and rein in a widening budget deficit.

The main share index climbed 0.6 percent on Friday, and helped post their first weekly rise in three weeks. 

Foreign funds have so far this year purchased a net $14.2 billion worth of Indian shares, helping the rupee recover from a record low of 52.2 in early March. Last year, they had sold more than a net $13 billion, pushing the rupee down by a fifth.

The dollar's fall also helped the rupee. The dollar eased slightly as expectations that data due later on Friday would show U.S. firms shedding fewer jobs boosted risk sentiment. 

The U.S. jobs report, due at 1330 GMT, is expected to show a slower pace of job losses but another rise in the unemployment rate, according to analysts polled by Reuters.

One-month offshore non-deliverable forward rupee contracts PNDF were quoting at 46.76/86, close to the onshore spot rate.

In currency futures INRFUTURES, the most traded near-month contract traded at 46.89 and 46.8775 respectively, from Thursday's 47.06 and 47.0650.

Copper to Outperform in 2010 on Stimulus Effect, Tong Yang Says

Copper, which has more than doubled in price this year, may outperform other metals in 2010 as government infrastructure spending boosts demand for the metal used in electrical wires, Tong Yang Securities Inc. said.

“Prices of industrial metals will advance next year,” Yi Seong Je, a commodities analyst at Tong Yang Securities in Seoul, said by phone yesterday. “Copper will outperform since stimulus spending is focused mostly on infrastructure, which primarily needs the metal.”

Copper gained to a one-year high last month on demand from China, the world’s biggest metals user, and as the dollar slumped against major currencies. China’s government is spending $586 billion to spur the local economy, helping to drive imports to record levels in the first half of 2009.

Yi forecast copper for delivery in three months on the London Metal Exchange may average around $6,500 a ton next year, and top $7,000 a ton by the end of 2010.

Copper on the LME has averaged $4,907 a ton this year, according to Bloomberg data. The metal gained 0.5 percent to $6,562 a ton at 10:06 a.m. Seoul time.

“What I am closely looking at now is demand-related indicators because current price levels fueled by increased liquidity cannot be sustainable without support from actual demand,” Yi said. “The key is by how much demand in major consuming nations apart from China will recover.”

Aluminum in London has gained 26 percent this year, while zinc has jumped 85 percent and lead has more than doubled.

Base-metal prices may decline toward the end of this year because “fundamentals are too weak” to justify current levels and a rebound in the dollar cannot be ruled out, he said.