Oil may rise this week as dollar's plunge continues

Dubai : Crude oil may rise this week on speculation the US dollar will deepen its losses, bolstering the attraction of commodities as an alternative investment, according to a survey by Bloomberg News.

Fourteen of 38 analysts, or 37 per cent, said futures will increase through Dec-ember 4. Twelve more respondents predicted that oil will drop, and another 12 said prices will remain steady. Earlier this month, analysts were divided as to the direction of prices, with 37 per cent expecting a decline and the same proportion anticipating no change.

"We will break upper resistance at about $80 a barrel and then maybe go higher to the upper $80s region," said Gerrit Zambo, a trader with Bayerische Landesbank in Munich. "The main reason for my conviction is the weaker US dollar."

Oil climbed 2.6 per cent to $77.96 on Wednesday, its biggest advance in a week, as the US currency slumped to its lowest against the euro since August 2008.

Currency movements have buoyed oil prices as stockpiles of unwanted fuel mount, with US crude inventories reaching a four-week high recently, according to the Energy Department.

Crude oil for January delivery fell $1.91, or 2.4 per cent, to $76.05 a barrel Friday on the New York Mercantile Exchange.

Futures

Futures were down 1.8 per cent last week and are 71 per cent higher this year.

The oil survey has correctly predicted the direction of futures 46 per cent of the time since its start in April 2004.

Earlier this month, Opec raised its forecast for world oil demand growth slightly but said fuel consumption may not return to levels seen before the global economic slowdown, even if growth recovers.

The Organisation of Petroleum Exporting Countries' (Opec's) November report raised its estimate for 2010 oil demand growth to 750,000 barrels per day (bpd) compared with its projection of 700,000 last month.

Gradual growth

It said most signs pointed toward gradual growth in fuel consumption, but there were risks to the downside.

"A potentially weak economic recovery along with higher prices are two main factors that may dampen world oil demand in the coming year," the report said.

Opec said changes in government policy and behaviour could erode demand for fuel, especially in sectors such as transportation.

"Even if the expected economic recovery materialises, it remains to be seen whether demand would be able to return to pre-crisis levels."

Demand for Opec's own crude would be 28.51 million bpd in 2010, up 110,000 bpd from its previous estimate, based on expectations of higher world demand and steady non-Opec supply.