OIL prices surged above US$70 a barrel yesterday in the final hours of a two-year US presidential campaign, mirroring global stock markets that strengthened from Asia to Europe. A weaker dollar helped too.
Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said the weaker dollar in particular likely attracted some people to oil.
Ritterbusch and other analysts also said there were reports that Saudi Arabia had already informed customers it was slashing production.
Light, sweet crude for December delivery rose US$6.62 to settle at US$70.53 a barrel on the New York Mercantile Exchange after rising as high as US$71.77. In London, December Brent crude rose US$5.96 to settle at US$66.44 on the ICE Futures exchange.
Investors see commodities such as oil as a hedge against inflation and a weak dollar and pour into the crude futures market when the greenback falls. A weak dollar also makes oil less expensive to buyers dealing in other currencies.
Oil prices have fallen roughly US$80 from their July peak around US$147. In October alone, crude prices tumbled 32 percent, the largest decline in Nymex history.
At home, the Dow Jones industrial average jumped about 300 points despite a new Commerce Department report that said factory orders fell 2.5 percent in September from August, much worse than analysts had predicted.
As the pace of industry has slowed and businesses consume less crude, the price of oil has fallen US$30 from just over a month ago. The price of retail gasoline dipped below US$2.40 gallon (63 cents a liter) for the first time since early last year.
Crumbling home prices, a shaky job market and gasoline that spiked above US$4 per gallon (US$1.07 a liter) have dramatically changed how Americans use fuel. While plummeting gas prices have certainly been welcomed by consumers, much of that exuberance has been lost amid a host of economic problems.
"The volatility and huge price swings we've seen this year are unmatched," said Ben Brockwell, director of data, pricing and information services for the Oil Price Information Service. "These erratic changes are a 2008 phenomenon."
On Monday, US manufacturers reported lethargic numbers for October, showing the worst reading in more than a quarter century, according to the Institute for Supply Management.
The presidential election could be influencing the market, said analyst and trader Stephen Schork.
"There may be a lot of money moving from the sidelines that's waiting to see how this election is going to shake out," Schork said.
Oil has not traded above US$70 in nearly two weeks. Some industry experts, including Schork, also attributed Tuesday's spike to the weaker dollar, which fell 4 cents against the euro to US$1.30.
"Anytime oil rises more than US$4 a barrel, it's usually myriad items at play," said Ritterbusch. "When the Dow is up, the world is good and nobody wants the dollar as a safe haven."
The week has thus far been characterized by volatile trading.
Crude prices fell US$4.46 on Monday, but those losses were erased early yesterday.
Credit Suisse on Monday cut its forecast for growth in China's oil demand next year to nearly zero from 4 percent on the back of lower economic growth forecasts.
"The latest set of economic data out of China suggests a much more severe economic slowdown is under way there. Hopes of even a slightly decoupled China in 2009 are fading fast," Credit Suisse said in a report.
Oil industry analysts had believed the booming economies of India and China would pick up any slackening of demand if Western nations went into recession. That view has weakened in recent months, as the economic crisis in the United States spread across the globe.
In other Nymex trading, gasoline futures rose 17 cents to settle at US$1.53 a gallon, after a steep fall overnight. Heating oil gained nearly 18 cents to US$2.16 a gallon while natural gas for December delivery rose 38 cents to fetch US$7.22 per 1,000 cubic feet.