US economy fuels oil price boost Crude trades near $88

Singapore: Oil traded within a dollar of a more than two-year high amid speculation the US economic recovery will accelerate next year, boosting fuel demand in the world's biggest crude user.

Crude was little changed at about $88 a barrel (Dh323) in New York, after paring gains as the dollar rose against the euro, damping the investment appeal of commodities.

Prices last week climbed 0.3 per cent as an index of US leading economic indicators increased by the most in eight months and data showed business confidence in Germany, Europe's largest economy, climbed to a record in December.

"Most people are quite positive on next year's view and are willing to take risks," said Tetsu Emori, a commodity fund manager at Astmax Limited in Tokyo."

On Friday, the market was quite positive, as were most of the commodities, even though the dollar was quite strong."

Crude for January delivery was at $88.11 a barrel in electronic trading on the New York Mercantile Exchange, up nine cents, at 3.10pm Singapore time.

The contract, which rose as much as 48 cents, or 0.6 per cent, was to expire at settlement yesterday. The more actively traded February future added seven cents to $88.67.

The dollar extended gains as South Korea started a live-firing drill, plans for which prompted North Korean threats of retaliation. The US currency climbed as much as 0.5 per cent to $1.3125 per euro, from $1.3188 on December 17 in New York.

The artillery exercise on Yeonpyeong Island, which was shelled by the North last month, began at 2.30pm local time, said a defence ministry official who asked not to be identified, citing government policy.

Economic rebound

Oil, which surged 78 per cent in 2009, is up 11 percent this year on speculation the global economic recovery will boost consumption. Prices rallied to $90.76 a barrel on December 7, the highest since October 2008.

The index of US leading economic indicators, the New York-based Conference Board's gauge of the outlook for the next three to six months, advanced 1.1 per cent to the highest since March. This matched the median forecast of economists surveyed by Bloomberg News.

The Munich-based Ifo research institute said its business climate index, based on a survey of 7,000 executives, rose to 109.9 from 109.3 in November, the highest since records for a reunified Germany began in 1991. Economists predicted a drop to 109, the median of 36 estimates in a Bloomberg News poll. US fuel demand jumped 6.5 per cent in November to 20 million barrels a day, the industry-funded American Petroleum Institute said in its monthly report December 17.

Crude stockpiles fell 9.85 million barrels to 346 million in the week ended December 10, according to the Department of Energy. That's the biggest decline since May 2008.

High volatility

"Consumer demand becomes increasingly hard to measure through the holiday season and end-of-year tax considerations create noise in the DOE inventory reports," Stephen Schork, president of The Schork Group, Pennsylvania.

Singapore (Bloomberg) Asia refining margins for fuel oil and gasoil were little changed near the lowest in more than a week, while profits from making naphtha fell from the highest this month.

Fuel oil's discount to Dubai crude, a measure of refining losses from making the fuel in Asia, was at $10.48 a barrel at 10am Singapore time, according to data from PVM Oil Associates, a brokerage.

The spread is at the widest since December 9. High-sulphur fuel oil swaps for January were unchanged at $513.75 a metric tonne.

Refining margins are falling as crude prices rally to the highest levels in two years.

Fuel oil stockpiles in Singapore rose to the highest in three weeks, a unit of the trade ministry said on December 16. "Likely to have countered higher Chinese fuel oil imports is the fact that Singapore bunker fuel sales dropped," Vienna- based consultant JBC Energy said in a report yesterday.

The premium of 180-centistoke fuel oil to 380-centistoke grade was unchanged at $10.50 a tonne, PVM said.

This viscosity spread has widened 31 per cent so far this month.