Oil rises above $81 on dollar

By Emma Farge

LONDON (BestGrowthStock) – Oil prices rose above $81 a barrel on Friday as positive German data and a dip in the dollar index (Read more about the global trade. ) stoked buying for commodities ahead of a G20 finance ministers’ decision on currencies.

The G20 meeting in South Korea looked unlikely to reach a deal on a U.S.-led initiative for a commitment from emerging countries to allow their currencies to rise.

The U.S. dollar index (Read more about the global trade. ) was volatile early on Friday and then turned negative in a move that pushed the U.S. crude benchmark up over $1 in intra-day trade as investors rushed to buy alternatives to cash.

By 1235 GMT (8:35 a.m. EDT), U.S. crude futures were up 88 cents at $81.44 a barrel, nearly reversing Thursday’s drop of more than 2 percent. ICE Brent rose $1.07 to $82.92 a barrel.

“The developing currency war and the devaluation war is the single most important factor for the oil market besides maybe the rate of Chinese economic growth,” said Eugen Weinberg, commodities analyst at Commerzbank adding, “the negative correlation is sustainable in the longer term.”

The dollar index (Read more about the global trade. ) has fallen around 7 percent from September highs and stoked buying interest among both buyers holding other currencies and investors looking for a commodities hedge.

Failure to reach a deal on currencies in South Korea could weigh further on the dollar, analysts said.

Positive German data showing business sentiment was strongest in 3-1/2 years in October also lifted oil prices on Friday.

“Today’s Ifo underlines that the German good-news-show is continuing and is more than just a rebound or a pure statistical effect. The broadening of the recovery will continue,” said Carsten Brzeski, ING Financial Markets.

Refinery outages in France were supportive for the oil complex on Friday with unions signaling their determination to keep fighting even if President Nicolas Sarkozy’s unpopular pension reform becomes law on Friday.

STIMULUS MEASURES

A batch of U.S. data on Thursday pointed to slow-growth in the world’s top oil consumer, reinforcing views the Federal Reserve will ease monetary policy further next month in an attempt to jumpstart the economy.

New claims for jobless benefits dropped last week but remained at levels suggesting little improvement in the distressed labor market.

Other reports showed only a modest rise in a gauge of future U.S. economic activity and a small gain in factory activity in the country’s Mid-Atlantic region.

“The general consensus is that more QE (quantitative easing) will be approved, which, in turn, is expected to reduce unemployment and boost demand,” said Tamas Varga at oil broker PVM.

Traders are expected to watch closely the result of the weekly U.S. ECRI — a leading economic index at 1430 GMT — for further clues about the pace of economic growth in the U.S.

(Additional reporting by Alejandro Barbajosa in Singapore; editing by James Jukwey)

Oil rises above $81 on dollar