Dollar’s Share of Central Bank Reserves Climbs as Euro’s Falls

Dec. 31 (Bloomberg) -- The dollar’s share of foreign exchange reserves climbed in the third quarter as the currency rebounded and central banks sought the safety of the world’s leading reserve currency, data from the International Monetary Fund showed.

The dollar accounted for 64.6 percent of the reserves held by governments and central banks at the end of September, up from 63 percent at the end of June, the Washington-based lender said today. The dollar’s share had fallen in the prior two quarters after the U.S. currency’s exchange rate fell to a record against the euro.

The euro’s share of reserves fell to 25.5 percent from 26.7 percent, and the yen’s declined to 3.1 percent from 3.3 percent. The quarterly figures go back to 1999, the year the euro was introduced.

Total reserves held by governments fell to $6.9 trillion at the end of September from $7 trillion three months earlier. Central banks submitted figures on their currency allocations for $4.36 trillion of the total, the IMF said.

Gold Rises, Caps Eighth Straight Annual Gain, on Haven Demand

Dec. 31 (Bloomberg) -- Gold prices rose, capping an eighth straight annual gain, on demand for a store of value as the recession deepens and tensions mount in the Middle East.

This year, gold climbed 5.5 percent, the smallest increase since 2004. Recessions in the U.S., Europe and Japan sent the Reuters/Jefferies CRB Index of 19 raw materials to the biggest drop ever and erased more than $30 trillion in value from global equity markets. Silver fell 24 percent in 2008, while platinum dropped 38 percent and palladium plunged 50 percent.

“In a world where material weakness is the obvious sign of the times, to be up even by this barest of margins is really quite impressive,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter.

Gold futures for February delivery rose $14.30, or 1.6 percent, to $884.30 an ounce today on the Comex division of the New York Mercantile Exchange. Earlier, the price dropped as much as 1.5 percent.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has climbed 24 percent this year to a record 780.2 metric tons on Dec. 29.

“Gold’s got the best shot of moving higher in 2009 out of any commodity,” said Matt Zeman, metals trader at LaSalle Futures Group in Chicago. “Its price is more driven by alternative-investment demand.”

Inflation Concerns

Gold may also benefit as U.S. policies to stop asset prices from falling send the dollar lower and result in inflation in the long term, said Chip Hanlon, the president of Delta Global Advisors Inc. in Huntington Beach, California.

The government has pledged more than $8.5 trillion to help ease the credit crisis. The Federal Reserve has slashed its benchmark interest rate to near zero to stimulate the economy. The federal-funds rate was at 5.25 percent in September 2007, when policy makers began cutting borrowing costs as the economy headed into a recession.

“The Fed believes it has to prop up the financial system,” Hanlon said. “The move toward quantitative easing to fight what they perceive as deflation ultimately will lead to higher rates of inflation.”

The escalating conflict between Israel and Hamas over the Gaza Strip will support gold prices, analysts said. Iran-backed Hamas seized control of Gaza last year, and the group is considered a terrorist organization by the U.S.

Iran holds the world’s second-largest petroleum reserves and sits on the narrow sea channel through which oil from the Persian Gulf is shipped. The conflict may boost energy costs and enhance gold’s appeal as an inflation hedge. Oil futures rose as much as 10 percent today.

‘Hot’ Middle East

“With the Middle East as hot as it is, I wouldn’t dream of selling,” said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland.

Gold’s gains this year were limited as the credit crisis forced investors to sell commodities to cover losses in other markets. The metal is down 14 percent from a record $1,033.90 in March. Oil, corn, soybeans, wheat and copper also tumbled from all-time highs.

Both the CRB and the Standard & Poor’s 500 Index are down almost 40 percent this year.

“It all came down to the collapse of the credit market and everybody getting squeezed,” Zeman said. “The speculators were out in droves early in the year, and we saw the run-up in gold and oil. This whole credit crisis is unprecedented, and all the big players bailed on their commodity positions to cover losses in equities.”

Silver may outperform gold in 2009, some analysts said.

“I like gold and silver, but I like silver just a little bit better,” Hanlon of Delta Global Advisors said.

Silver futures for March delivery climbed 31.5 cents, or 2.9 percent, to $11.295 an ounce on the Comex.

Platinum futures for April delivery rose $24.10, or 2.6 percent, to $941.50 an ounce on the Nymex. Palladium for March delivery rose $4.55, or 2.5 percent, to $188.70 an ounce.

The platinum slide this year was a record. Palladium dropped the most since 2001.

Oil Surges 14 Percent on Lower-Than-Forecast Fuel Supply Gain

Dec. 31 (Bloomberg) -- Crude oil rose 14 percent, trimming a record annual decline, after a government report showed a smaller-than-expected gain in U.S. fuel supplies.

Stockpiles of gasoline and distillate fuel, a category that includes heating oil and diesel, climbed in the week ended Dec. 26, the Energy Department report showed. Prices have tumbled 70 percent from a record $147.27 on July 11 as the U.S., Japan and Germany faced their first simultaneous recessions in six decades.

“We are very near the bottom in oil prices, or will reach the bottom in the next few weeks,” said Ehsan Ul-Haq, head of research at Vienna-based JBC Energy GmbH, an oil broker and consultant. Prices will be subdued “as long as stockpiles remain very high,” he said.

Crude oil for February delivery rose $5.57 to $44.60 a barrel at 2:55 p.m. on the New York Mercantile Exchange, the highest settlement since Dec. 12. Futures are down 54 percent this year, the first annual decline since 2001 when oil fell 26 percent, and the biggest drop since trading began in 1983.

Gasoline inventories rose 808,000 barrels to 208.1 million barrels in the week ended Dec. 26, the Energy Department report showed. A 1.7-million-barrel increase was forecast, according to the median of 13 responses in a Bloomberg News survey. Distillate supplies climbed 694,000 barrels to 136 million barrels. Stockpiles were forecast to rise 1.5 million barrels.

Refineries operated at 82.5 percent of capacity last week, down 2.2 percentage points from the week before and the lowest since the period ended Oct. 10 when the Gulf Coast was recovering from hurricanes Gustav and Ike. Analysts forecast a 0.5 percentage-point increase.

‘Ugly’ Numbers

“The refining numbers are ugly,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “I can’t recall seeing utilization numbers this low outside of a hurricane disruption.”

Refiners often shut units for maintenance, also known as turnarounds, in late January and February as heating-oil demand falls and before gasoline use rises.

Oil may rebound next year to average $60 a barrel as the Organization of Petroleum Exporting Countries makes record production cuts to counter the deepest economic slump since World War II, according to the median of estimates by 33 analysts surveyed by Bloomberg. That would be a 35 percent gain from today’s price.

Quota Compliance

“The economy will remain the main focus for the near term and any bullish stories we get from OPEC will have limited impact,” said Tom Bentz, senior energy analyst at BNP Paribas in New York. “It does appear OPEC members are making efforts to comply with quotas. We will have to see if the trend continues.”

The number of people in the U.S. collecting unemployment benefits jumped to the highest level since 1982, the Labor Department said today in Washington.

Oil also rose on concern that supplies from the Middle East may be disrupted amid a conflict between Israel and Hamas in the Gaza Strip, and as Russia threatened to halt natural-gas shipments to Ukraine tomorrow for the second time in three years.

“This week was a throwback week with geopolitical risk returning as a market factor due to the Israel-Hamas conflict and the Ukraine-Russia row,” said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. “To keep prices at the recent extreme low, the world needs to be a quiet place both economically and geopolitically.”

Volume in electronic trading on the exchange was 305,773 contracts as of 3:08 p.m. in New York. Volume totaled 256,622 contracts yesterday, down 46 percent from the average over the past 3 months.

Gasoline Surges

Gasoline futures for January delivery climbed 12.29 cents, or 14 percent, to settle at $1.0082 a gallon in New York. Heating oil for January delivery increased 11.77 cents, or 9.1 percent, to end the session at $1.4057 a gallon. The January gasoline and heating-oil futures contracts expired today.

Crude oil supplies rose 549,000 barrels to 318.7 million barrels last week. Inventories were forecast to decline 1.45 million barrels, according to the Bloomberg News survey.

“We have ample crude-oil supplies and a minor surplus in supplies of the products,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “If we have a heavy turnaround period, the surplus in products could soon turn into a deficit.”

U.S. fuel consumption during the four weeks ended Dec. 26 averaged 19.9 million barrels a day, down 3.7 percent from a year earlier, the report showed.

Brent crude oil for February settlement rose $5.44, or 14 percent, to settle at $45.59 a barrel on London’s ICE Futures Europe exchange.

There will be no floor trading on Nymex tomorrow. Electronic trading will shut at 5:15 New York time today and resume at 6 p.m. tomorrow as part of the Jan. 2 session.

Crude Oil Falls a Second Day, Heading for Record Annual Decline

Dec. 31 (Bloomberg) -- Crude oil fell for a second day, heading for a record annual drop, on speculation that U.S. fuel stockpiles are increasing as the recession cuts demand.

U.S. gasoline supplies probably rose last week to the highest since August, according to a Bloomberg News survey conducted before an Energy Department report due today. Confidence among U.S. consumers sank to the lowest level in at least 41 years as Americans grew concerned about keeping their jobs, the New York-based Conference Board said.

Crude oil for February delivery declined as much as 53 cents, or 1.4 percent, to $38.50 a barrel on the New York Mercantile Exchange and traded at $38.51 at 12:16 p.m. Singapore time. Prices are down 60 percent this year, the first annual drop since 2001 when oil fell 26 percent, and the biggest decline since trading began in 1983.

“The fundamentals are very bearish and more bad news will be coming out next year as demand is slowing down,” Hirofumi Kawachi, an analyst with Mizuho Investors Securities, said by phone from Tokyo. “We don’t see any fundamental factor to boost prices.”

Kawachi estimates oil falling to $25 a barrel by the end of next year after rallying briefly in early 2009.

Oil may rebound next year to average $60 a barrel as the Organization of Petroleum Exporting Countries makes record production cuts to counter the deepest economic slump since World War II, according to the median forecasts of 33 analysts compiled by Bloomberg. That would be a 54 percent gain from today’s price.

U.S. Stockpiles

“The indicators are still weak; they’re not really painting a picture of any improvement,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “The timing and magnitude of any recovery next year is still very uncertain.”

Brent crude for February settlement declined as much as 76 cents, or 1.9 percent, to $39.39 a barrel on London’s ICE Futures Europe exchange.

U.S. gasoline stockpiles probably rose 1.7 million barrels in the week ended Dec. 26, from 207.3 million barrels the week before, according to the median of 13 analyst estimates.

Supplies of distillate fuel, a category that includes heating oil and diesel, probably increased 1.5 million barrels. Crude-oil inventories probably dropped 1.45 million barrels last week, the survey showed.

The Energy Department is scheduled to issue its weekly report at 10:35 a.m. in Washington today.

“The one ray of hope is that we are coming into one of the traditional peak periods as far as demand is concerned,” said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management. “We could get some cold temperatures in the Northern Hemisphere which might provide some upward impetus for the oil price.”

Gaza Strip

A storm may dump 6 inches of snow on Boston tomorrow, while revelers in New York City’s Times Square will have a frigid New Year’s Eve, forecasters say. A second storm will hit the U.S. Northeast Jan. 2, though it is too early to tell what that system will bring to the region, said Bill Simpson, a meteorologist with the National Weather Service in Taunton, Massachusetts.

Oil rose more than 6 percent in each of the two trading days through Dec. 29 on concern that supplies from the Middle East may be disrupted amid a conflict between Israel and Hamas in the Gaza Strip. In the deepest strike yet into Israeli territory, a rocket last night hit the city of Beersheba, 40 kilometers (24 miles) from Gaza.

“The dominant theme in the oil market remains that weak demand outlook which is overshadowing the current geopolitical issues in the Middle East,” Commodity Warrants’ Hassall said.