Traders work in the crude oil options pit on the floor of the New York Mercantile Exchange in New York, on Sept. 22, 2008. Photographer: Jin Lee/Bloomberg News
Sept. 22 (Bloomberg) — Crude oil climbed more than $25 a barrel, the biggest gain ever, as the dollar weakened the most against the euro since January 2001, boosting the appeal of commodities as a hedge.
The October contract, which expires today, rose almost $12 more than the contract for November delivery, as traders rushed to close positions. Oil, gold, corn and other commodities climbed as the dollar dropped on concern that a U.S. proposal to buy $700 billion of troubled assets from financial firms will deepen the budget deficit.
“This looks like a squeeze play,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “All of the contracts are up, but nothing like October. This is the last day of trading and someone is scrambling to guarantee supply.”
Crude oil for October delivery rose $18.05, or 17 percent, to $122.60 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures climbed as much as $25.45 to $130 a barrel, the highest since July 22. The more- active November contract rose $6.11, or 6 percent, to $108.86 a barrel.
“It’s a very small pool playing in this market right now, and that’s why you’re seeing those massive differentials” between the October and November contracts, said David Kirsch, an energy markets analyst at PFC Energy in Washington. “Somebody did place a wrong bet and is trying to cover that position. That’s why you’ve got that yawning gap and a normal gap between the November and December contracts.”
Investors looking to hedge against the dollar’s decline earlier this year have helped lead oil, gold, corn and gasoline to records. The dollar declined 2.1 percent to $1.4769 per euro, from $1.4466 on Sept. 19. It touched $1.4778, the weakest level since Aug. 29.
“Gold, silver, oil, copper, just about any hard asset, is looking good at this point,” said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. “With the dollar down and stocks getting hit, commodities look like a safe play.”
Oil has risen 35 percent since Sept. 16 as lawmakers pledged fast consideration of the Treasury’s plan to buy devalued mortgage-related securities.
“There’s a flight to quality and the energy markets are benefiting,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The dollar is down again and investors are fleeing to commodities. We are back to the cycle that pushed prices to records earlier this year.”
Oil fell more than $10 a barrel early last week as the bankruptcy filing of Lehman Brothers Holdings Inc. shocked world equity markets.
“A lot of Wall Street traders are more secure in their jobs this week, which is providing a little extra juice to the relief rally,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “It’s still unclear how much the relief on Wall Street will trickle down and lead to increased demand on Main Street.”
Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended Sept. 16, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 19,379 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report.
Gasoline for October delivery increased 8.98 cents, or 3.5 percent, to $2.6895 a gallon in New York. Heating oil rose 13.27 cents, or 4.6 percent, to $3.0305. Heating oil is heading for the biggest single-session gain since June 6.
Regular gasoline, averaged nationwide, declined 1.8 cents to $3.739 a gallon, AAA, the nation’s largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17.
Crude oil prices are “too high” because the global economic slowdown may spread and cut consumption, the International Energy Agency’s deputy executive director said.
“The economic slowdown in the U.S., Europe hasn’t gotten into China, India much, but at some point you have to presume it will,” William Ramsay said in an interview in Bangkok today.
Brent crude oil for November settlement rose $5.79, or 5.8 percent, to $105.40 a barrel on London’s ICE Futures Europe exchange.
Last Updated: September 22, 2008 14:51 EDT
By Mark Shenk