Oil rises above $88 as US dollar weakens

[December 17, 2010]  SINGAPORE (AP) -- Oil prices rose above $88 a barrel Friday in Asia as a weaker U.S. dollar made crude cheaper for investors with other currencies.

Benchmark oil for January delivery was up 52 cents to $88.22 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell 92 cents to settle at $87.70 on Thursday.

The euro gained to $1.3314 on Friday from $1.3243 late Thursday while the dollar hovered below 84 yen.

Oil has bobbed in the upper $80s this month as traders mull prospects for global crude demand next year. Without a strong catalyst, crude often trades in reaction to the equity and currency markets.

The global oil market is closed the next two Fridays for the Christmas and New Year's holidays and many traders will take time off until next year, leading to low trading volume the next two weeks.'

Encouraging signs about the U.S. economy also lifted oil prices. The Labor Department said Thursday that first-time claims for unemployment benefits fell last week to 420,000, the third drop in four weeks, while the Commerce Department said housing starts rose slightly last month, reversing a two-month decline.

"An almost daily dose of positive economic guidance was furthered by some favorable jobless and housing start figures," Ritterbusch and Associates said in a report. "We expect crude to spend most of its time within its comfort zone of about $88-89."

Oil traded near $70 for most of this year, but higher-than-expected demand from emerging economies, led by China, helped push crude to a two-year high of $90 earlier this month.

The Paris-based International Energy Agency said global demand will likely be 87.5 million barrels a day this year, up from the group's prediction for 2010 of 84.3 million made in June of last year.

"The sheer scale of upside surprise in oil demand has been dramatic in 2010," Barclays Capital said in a report. "The upward revision to medium-term oil demand is probably not over yet."

In other Nymex trading in January contracts, heating oil rose 0.8 cent to $2.48 a gallon, gasoline futures added 0.9 cent to $2.31 a gallon and natural gas dropped 4.4 cents to $4.00 per 1,000 cubic feet.

In London, Brent crude rose 41 cents to $92.01 a barrel on the ICE Futures exchange.

[Associated Press; By ALEX KENNEDY]

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