Crude Oil Caps Biggest Monthly Gain Since 1999 on Dollar Drop

Oil & gas defy recession; crude hurdled $66 a barrel

Crude oil rose, capping its biggest monthly gain in a decade, as the dollar weakened against the euro, bolstering the appeal of commodities. Oil climbed above $66 a barrel to a six-month high as the dollar declined beyond $1.41 against the euro for the first time this year, making raw materials such as oil and gold an attractive alternative investment. Prices also gained as U.S., and Asian indicators pointed to a global economic recovery.

The predictions for just how high oil can reach this year, just like 2008, continue to creep upward just five months removed from crude priced around $32 per barrel.

The gasoline-pump panic of 2008 has yet to surface, but that's not to say there haven't been some double-takes.

But a gallon of gas is still $1.485 below the price a year ago and that, at its heart, is why you are unlikely to see the same price spikes this time around.

Crude prices have spiked 30 percent this month, enough to give anyone vertigo. But the pain is relative.

At this time last year, crude prices were brushing up against $130.
While crude has risen fast through May, we're still around $66.

For gas prices to hit $3, crude would need to go to about $100 a barrel, well above even the highest projections this year of $70 to $75.

“The devaluation of the dollar is leading to the revaluation of energy and commodities in general,” said John Kilduff, senior vice president of energy at MF Global in New York. “This is a monetary-based rally. The market is focused on the future and ignoring the fundamentals of the present day crude-oil supply and demand picture.”

Crude oil for July delivery rose $1.23, or 1.9 percent, to $66.31 a barrel at 2:59 p.m. on the New York Mercantile Exchange, the highest settlement since Nov. 4. Oil advanced 30 percent in May, the biggest monthly increase since March 1999, when Asia was recovering from the 1997-1998 financial crisis. Prices climbed 7.5 percent this week and 49 percent this year.

Crude oil volume in electronic trading on the Nymex was 359,775 contracts as of 3:11 p.m. in New York. Volume totaled 501,771 contracts yesterday, 0.6 percent higher than the average over the past three months. Open interest was 1.12 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.

The U.S. currency had its biggest monthly decline against the euro this year. The dollar dropped 1.4 percent to $1.4134 versus the single European currency.

Lower Supplies
Prices are also rising because of declining U.S. inventories. Crude-oil supplies fell 5.41 million barrels to 363.1 million last week, an Energy Department report showed yesterday. It was the biggest decrease since September. The drop left inventories 27 percent greater than the five-year average, up from a 23 percent surplus a week earlier.

Oil’s rally is driven by improving sentiment about the global economy and isn’t supported by demand, OPEC Secretary General Abdalla el-Badri said today. Global crude stockpiles remain very high, El-Badri told reporters at a briefing in Vienna. Still, prices may reach $70 to $75 a barrel by the end of the year, partly because speculators are returning to commodity markets, he said.

“The drop in U.S. inventories is evidence that the OPEC production cuts are starting to bite,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “There’s some optimism about the economy, which is driving the oil market. It’s important to keep in mind that demand has shown absolutely no sign of recovery.”