Oil prices rise as dollar falls

NEW YORK - Oil futures rose above $83 a barrel on Friday, approaching record territory as the steadily weakening dollar drew buyers into commodity markets.

The resumption of attacks on oil workers in Nigeria also supported prices, but most analysts said the most significant factor driving oil prices were currency markets and buying by investment funds.

"There's definitely been a flow of fund buying here," said Tim Evans, an analyst at Citigroup Inc. in New York.

Oil and other commodities denominated in dollars are actually falling in price in the eyes of foreign investors. That's because the dollar has been sliding against other currencies since the Federal Reserve cut interest rates last week. The dollar fell further on Friday on expectations another rate cut is coming.

Buying by foreign investors precipitates new investment by domestic traders betting the added demand will boost prices.

But Evans and other analysts argue that market fundamentals do not support such high prices. Oil inventories are falling, but that's typical for this time of year, Evans said. Oil inventories are 1.3 percent below year-ago levels, but oil's price is more than $20 a barrel higher, he said. And high oil and gas prices are depressing demand, Evans added.

Stephen Schork, an analyst and trader in Villanova, Pa., argued that many funds have been buying oil futures this week to pad their results for the third quarter. Friday was the last trading day of the third quarter.

"Hedge fund managers ... went window shopping in the (New York Mercantile Exchange crude) pit to dress up their end-of-quarter marks," Schork said in his daily Schork Report research note. "We are more interested to see how the fourth quarter begins on Monday rather than how the third quarter ends today."

"The people buying crude oil futures are buying them to sell them," Evans said.

So, while the current fund buying is boosting oil prices, the selling that will inevitably follow will depress prices ― at some point, Evans said.

In Friday trading, light, sweet crude for November delivery rose 33 cents to $83.21 a barrel on the Nymex. Oil prices peaked at a record $83.90 last week before retreating below $80 a barrel early this week. When an Energy Department report on Wednesday showed crude inventories rose last week, countering expectations for a decline, prices fell below $79 ― but then rebounded late in the day.

Futures have rallied since then, a sign that big investors are continuing to plow money into oil, regardless of the fundamentals, Evans said.

"A market that fails to decline on bearish news is a bull market," Evans said.

Other energy futures have followed oil's advance only sporadically. When oil futures surged more than $2 on Thursday, gasoline and heating oil followed suit, adding more than 6 cents each. On Friday, however, October gasoline fell 2.29 cents to $2.071 a gallon. But October heating oil rose 0.15 cent to $2.2536 a gallon.

Inventories of both gasoline and heating oil grew more than expected last week. And both contracts expire Friday. Trading in expiring contracts is often volatile as investors make late moves to square positions.

Natural gas for November fell 3.9 cents to $6.88 per 1,000 cubic feet. The government reported Thursday that natural gas inventories grew last week slightly more than expected.

In London, November Brent crude rose 60 cents to $80.63 a barrel on the ICE Futures exchange.

At the pump, meanwhile, the average national price of a gallon of gas fell 0.6 cent overnight to $2.805 a gallon, according to AAA and the Oil Price Information Service. Analysts have been predicting gas prices will add 10 to 15 cents a gallon to catch up to the increase in oil prices, but so far the increases have been slight. Retail gasoline prices are only 0.8 cent higher than they were a week ago.