Oil extends gains toward $70 on weak dollar

Oil extends gains toward $70 on weak dollar

Singapore: Oil rose towards $70 a barrel on Thursday, building on its more than 7 % surge in the previous session, after a US Fed Reserve interest rate cut led the US dollar to its biggest daily fall in 23 years.

Asian stocks markets brightened after the Fed cut, with the Nikkei jumping 3.9%, further supporting oil. Like other commodities, oil has become more sensitive to the gyrations of the wider economy as the global financial crisis widens.

US light crude for December delivery rose $2.14 to $69.64 a barrel, having gained $4.77, or 7.6% on Wednesday on the back of the lower greenback.

London Brent crude was up $1.98 at $67.45.

“One of the reasons oil is going up is because of these rate cuts. It may mean that we have seen a bottom in the stocks markets," said Tony Nunan, assistant manager of risk management at Tokyo-based Mitsubishi Corp.

Oil has more than halved from its record high above $147 struck in mid-July and is down by 30% so far this month.

The Fed cut interest rates by half a percentage point, taking its target for overnight bank lending to 1 percent, the lowest since 2004, in an attempt to lower credit and revive the sagging economy.

China also cut its interest rates on Wednesday, kicking off what is likely to be a global round of interest rate cuts, with Norway having already followed suit, and Taiwan cutting rates on Thursday for the third time in about a month. Japan might cut interest rates at a policy-setting meeting on Friday.

The Fed cut pushed the dollar lower, making dollar-priced commodities cheaper and more attractive for holders of other currencies.

On Thursday, the dollar fell against the euro, recoiling from a 2-“ year high hit earlier this week as a rally in oil spurred investors to pick up currencies that had been beaten down during the recent slide from record highs near $150 in mid-July.

On the fundamentals front, Opec’s decision last week to cut output by 1.5 million barrels per day and hints that it may cut again also helped the market, Nunan said.

“The really bullish factor is the Opec cut. I think they will do it. That’s the difference between oil and other commodities. Oil has a group to defend prices. And they will agree to another cut if needed," he added.

Kuwait’s oil minister Mohammad al-Olaim told reporters on Wednesday that Opec may decide another cut if there is a production surplus.

US weekly stocks data was mixed data, with crude oil stocks up 500,000 barrels, less than an expected 1.4 million rise, but distillate stocks were up 2.3 million, well above the 800,000 barrels increase forecast.

Gasoline stocks fell by 1.5 million barrels, against expectations for a 1.2 million barrel build, but that was on lower production.

Gasoline demand continued to fall, down 3.4% over the past four weeks versus the year-ago period, while total product demand was down 7.8% for the same period.