Declining US inventories and a weakening dollar give oil prices a boost

Source: Agencies  |   2008-10-30  |     ONLINE EDITION

OIL prices rebounded from 17-month lows as stock markets rallied across the globe yesterday.

Oil traders began placing bets that falling demand for crude may have already driven oil prices as low as they will go.

Light, sweet crude for December delivery rose US$4.77 to US$67.50 a barrel on the New York Mercantile Exchange. The contract settled at US$62.73 Tuesday, the lowest closing price since May 2007.

In a shift from the past several weeks, the government reported that crude and gasoline inventories were actually lower than expected, giving traders another reason to be bullish.

The Energy Information Administration's weekly report showed that crude inventories rose 500,000 barrels last week, a million fewer barrels than was expected by analysts surveyed by energy information provider Platts. Gasoline inventories decreased 1.5 million barrels last week, a surprise to analysts who predicted a build of 900,000 barrels.

The price of crude has been in a free fall, prompting OPEC to cut production by 1.5 million barrels a day.

Oil investors have recently looked to equity indexes as a barometer of global economic health. A rally that began with a nearly 900-point jump in the Dow Jones industrial average Tuesday spread to Asia, then Europe, and then back to the United States yesterday. The major indexes all rose at least 2 percent after the central bank announced it was lowering its fed funds rate to 1 percent, but a sell-off in the final minutes of trading pushed the Dow down about 75 points.

Oil trader and analyst Stephen Schork said oil prices rose because the dollar weakened. He cited the rate cut by the Federal Reserve and an oversold market for crude.

Investors often buy commodities such as crude oil as an inflation hedge when the dollar weakens and sell those investments when the greenback rises.

"Anyone who thinks a bottom is in, I'll sell them all the oil they want," Schork said.