Weak dollar, strong stock market push oil higher

Oil prices climbed Tuesday as the combination of a weaker dollar and stronger stock market outweighed concerns about weak demand and vast supplies of crude.

Benchmark crude for November delivery rose 47 cents to settle at $70.88 a barrel on the New York Mercantile Exchange.

Meanwhile, the government said in its annual winter outlook Tuesday that lower fuel costs and an expected milder winter for much of the nation will cut average winter heating costs by 8 percent from last year to about $960 this winter.

The dollar fell on Tuesday toward year lows against the euro and yen after Britain’s Independent newspaper reported that Arab states, China, Russia, Japan and France were meeting secretly to end the dollar’s role in pricing oil. Several countries denied such talks had taken place.

Because crude is priced in dollars it becomes cheaper when the dollar falls. Some investors also use commodities such as oil and gold as a hedge against inflation and dollar weakness. Gold hit a record $1,043 an ounce Tuesday.

Oil also pushed higher as U.S. stock markets climbed more than 1 percent for a second day, driving hope that the economy is recovering and that demand for crude will grow.

Still, investors say demand remains weak because of the recession and supplies remain abundant.

On Wednesday, the Energy Information Administration releases its weekly supply report, which is expected to show crude placed into storage grew by nearly 2 million barrels and that supplies of gasoline and distillates used for heating oil and diesel also climbed for the week ended Friday, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

“Every Wednesday morning, the market has to go before the judge and get a dose of reality in the form of a weekly statistic that generally indicates a vast oversupply,” said Jim Ritterbusch of Ritterbusch and Associates.

The glut of energy supplies combined with weak demand is the reason heating costs will be lower this year.

Households are expected to pay an average of $783, nearly 12 percent less than last winter, for natural gas, and $1,821 for heating oil, about 2 percent lower, according to EIA. Families using electric heat will pay $933, a decline of 2 percent, and those using propane $1,667, or 14 percent less than last winter, the agency said.

Prices at the pump remained steady at $2.461 a gallon overnight, according to auto club AAA, Wright Express and Oil Price Information Service. Prices are 12.3 cents below levels of a month ago and $1.043 down from a year ago.

Gasoline demand is showing signs of stabilizing, rising slightly for each of the past three weeks after declining following the end of the summer driving season, according to the weekly report by MasterCard SpendingPulse. Demand for the week ended Friday rose 7 percent from a year ago when the country’s financial meltdown crushed demand along with supply constraints in parts of the country following hurricanes Gustav and Ike.

MasterCard’s report is based on aggregate sales activity in the MasterCard payments network, coupled with estimates for all other payment forms, including cash and check.

In other Nymex trading, heating oil rose 2.26 cents to settle at $1.8142 a gallon and gasoline gained 1.88 cents to settle at $1.7727 a gallon. Natural gas for November delivery lost 10.7 cents to settle at $4.88 per 1,000 cubic feet.

In London, Brent crude rose 52 cents to settle at $68.56 on the ICE Futures exchange.

Associated Press writers H. Josef Hebert in Washington, George Jahn in Vienna and Alex Kennedy in Singapore contributed to this report