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Oil nears 2010 high; Commodities surge on investment flows

Technicals show new $90-$93 range.

November 5, 2010 10:38 by

Oil prices, up every day this week, approached the highs for the year as a new round of economic stimulus in the U.S. raised the appeal of commodities to preserve value in an environment of dollar depreciation.

U.S. crude for December touched $86.95 a barrel on Friday, the highest in six months and just 20 cents away from the 2010 peak of $87.15 on May 3. It was up 45 cents at $86.94 at 0255 GMT. ICE Brent gained 57 cents to $88.57.

Markets focused on a monthly U.S. jobs report due later on Friday, the last before fresh Federal Reserve bond purchases kick in, while oil prices remained supported by Wednesday’s data showing larger-than-expected drops in U.S. fuel stocks last week.

“Inventories are getting lower and demand is getting better, but the issue that we have to look at is the financial side and the injection of money,” said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd. “That should push up the oil price. We don’t really need to look at the fundamentals.”

The dollar struggled near fresh lows on Friday after breaking down to a new 2010 trough against a basket of currencies as the Fed’s decision rekindled investor appetite for risk.

The Fed on Wednesday launched a new round of quantitative easing, or government debt purchases, to support a struggling U.S. economy, saying it would buy about $75 billion of Treasury bonds per month through the end of June 2011 and could adjust purchases depending on the pace of economic recovery.

U.S. employment probably increased in October for the first time since May, a Reuters survey showed, but too feebly to signal a meaningful shift in the almost stagnant labor market. That should leave the unemployment rate at an elevated 9.6 percent in October.

New U.S. claims for jobless aid rose last week and a strong rebound in productivity in the third quarter showed employers wringing more output from current workers rather than hiring.

Global oil demand next year could bounce back to levels last seen in 2007 as recovery from the deepest recession in decades drives fuel use, but the Organization of the Petroleum Exporting Countries (OPEC) does not plan to add extra capacity as more non-OPEC supply curbs the need.

An oil price of $90 a barrel would not hold back the world economy, OPEC’s secretary general said on Thursday, a higher level than previously identified as posing no risk to growth.

JP Morgan on Thursday raised its forecasts for U.S. crude benchmark West Texas Intermediate (WTI) in 2011 by more than $7 to $89.75 a barrel, while the bank projects Brent will average $2 higher, after the Fed’s decision to embark on new stimulus.

“As we approach the winter, it is no longer appropriate to talk about burdensomely high inventory levels,” JP Morgan analysts headed by Lawrence Eagles said. “Floating stocks of crude have been whittled away, and tightening forward spreads show the crude market to be in draw mode.”

Seasonal refinery maintenance and the French strike last month have depleted oil product stocks, leaving gasoline inventories at the lower end of their five-year range in OECD Europe and Asia, according to JP Morgan.

China’s top refineries will process a record high volume of crude oil in November after Beijing hiked fuel prices, as domestic fuel stocks were running low and diesel shortages were spreading in some regions.

The Reuters-Jefferies CRB index, a global commodities benchmark, rose above 312 points on Thursday to its highest since October 2008. Gold, a traditional haven for investors shunning dollars and hedging against inflation, hit a new record high above $1,390 an ounce and oil climbed to six-month peaks.

World stocks soared to highs last seen before Lehman Brothers’ collapse in 2008 and the dollar fell sharply on Thursday on rising risk appetite in the afterglow of the Federal Reserve’s asset buying plan.

Japan’s Nikkei rose 2 percent to a two-week high on Friday, as exporters and resource shares gained.

(Editing by Manash Goswami)

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