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Oil Rises as Higher U.S. Home Prices Bolster Economic Optimism
Oct 27, 2009 - (Bloomberg) -- Crude oil rose after an index of home prices climbed in August, bolstering optimism that the economy of the world’s biggest energy consuming country is recovering from the worst recession since the 1930s.

Oil advanced 1.1 percent after the S&P/Case-Shiller home- price index showed that prices increased 1 percent from the prior month. Futures dropped 2.3 percent yesterday, the most since Sept. 24, as the dollar had the biggest gain against the euro since August.

“The recovery of the housing market will be a major part of any economic rebound,” said John Kilduff, senior vice president of energy at MF Global in New York. “We will keep an eye on the dollar because it is the overwhelming driver of commodity markets these days.”

Crude oil for December delivery rose 87 cents to settle at $79.55 a barrel at 2:51 p.m. on the New York Mercantile Exchange. Prices have climbed 78 percent this year and reached a one-year high of $82 a barrel on Oct. 21.

Prices increased from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. stockpiles declined 3.53 million barrels to 339.5 million last week. December oil was up 94 cents, or 1.2 percent, to $79.62 a barrel in electronic trading at 4:33 p.m.

Oil also increased after a rocket fired from Lebanon hit the northeastern corner of Israel. The attack prompted retaliatory fire, an Israeli army spokeswoman said, speaking anonymously according to regulation.

Rising futures prices have bolstered oil-company shares. Exxon Mobil Corp., Chevron Corp. and ConocoPhillips led energy companies to the biggest gain among 10 Standard & Poor’s 500 industries today. Exxon Mobil rose 2.3 percent to $74.91. Chevron climbed 1.5 percent to $76.59. ConocoPhillips gained 1.3 percent to $51.40.

Consumer Confidence

Prices slipped as much as 1.1 percent earlier today when the dollar climbed and a report showed that U.S. consumer confidence unexpectedly declined last month. The dollar gained 0.5 percent to $1.4809 per euro, up from $1.4876 yesterday.

The Conference Board’s confidence index dropped to 47.7 from a revised 53.4 in September. Economists forecast confidence would increase to 53.5 from a previously reported 53.1 for September, according to the median of 74 projections in a Bloomberg News survey.

“Sometimes the price of oil has no correlation to demand and supply,” Qatari Oil Minister Abdullah bin Hamad al-Attiyah said today in Ras Laffan, Qatar. “Now what we are seeing is that oil has a strong correlation with the dollar.”

The Organization of Petroleum Exporting Countries will raise oil output if there’s a “real” shortage of supply, al- Attiyah said. The 12-member group is scheduled to meet Dec. 22 in Luanda, Angola, to review production targets.

‘Not Justified’

The rally in oil “is not justified by the fundamentals,” New York University professor Nouriel Roubini said today via satellite to a conference in Cape Town.

An Energy Department report tomorrow will probably show that U.S. crude-oil supplies increased last week as fuel stockpiles fell, according to a Bloomberg News survey.

“Oil is edging higher while waiting for the next set of U.S. oil statistics tomorrow,” said Harry Tchilinguirian, a senior oil analyst at BNP Paribas SA in London. “The fundamentals of oil still favor a much lower valuation than the current levels.”

Stockpiles of crude oil rose 1.91 million barrels in the week ended Oct. 23 from 339.1 million the prior week, according to the median of 16 estimates by analysts before the department’s report tomorrow. All respondents forecast a gain.

Fuel Stockpiles

Gasoline inventories probably fell 1 million barrels from 206.9 million the week before, the survey showed. Supplies of distillate fuel, a category that includes heating oil and diesel, declined 1 million barrels from 169.9 million the prior week, according to the survey.

“It won’t take a lot to push oil 25 percent above current levels,” Francisco Blanch, head of global commodity research at Bank of America-Merrill Lynch in London, said in an interview with Bloomberg Television. “The economy around the world is starting to recover. But the actual demand for those barrels hasn’t picked up tremendously yet.”

The International Energy Agency raised its 2010 world demand outlook for a third month in an Oct. 9 report, citing higher-than-expected consumption in Asia and the Americas. The IEA, which advises 28 nations on energy policy, also forecast a contraction of 1.9 percent this year. In September, it estimated a decline of 2.2 percent for 2009.

Brent Oil

Brent crude oil for December settlement increased 66 cents, or 0.9 percent, to end the session at $77.92 a barrel on the London-based ICE Futures Europe exchange.

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