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Oil edges higher on weak dollar

OIL prices jumped yesterday and nearly touched US$80 before falling, on a weakening dollar and surprising housing numbers which lifted hopes of an economic rebound.

Benchmark crude for January delivery rose 9 cents to settle at US$77.56 a barrel on the New York Mercantile Exchange. It traded as high as US$79.92 earlier in the day.

The National Association of Realtors said U.S. home sales rose 10.1 percent in October. That is the highest level in more than two years and helped push crude prices higher on expectations of increased demand.

Still, crude in storage is above normal levels for this time of year and refiners that turn oil into gasoline, jet fuel and diesel are cutting back because demand is so weak.

Valero Energy became the latest to shut down a refinery Friday, the largest U.S. facility shut down so far this year.

That follows other refiners like Sunoco and Western Refining, who have shut down plants in recent months and off almost 1,000 workers.

Refiners say they can't raise the price of gasoline and jet fuel because people aren't traveling as much, but they must pay higher prices for crude because of the weak dollar.

Investors holding stronger currencies can buy more dollar-based crude when the U.S. currency falls. But the refiners that turn crude into gasoline, jet fuel and diesel are cutting back because demand is so weak

Air travel is projected to decline 6.7 percent, or 2.3 million travelers this year compared to 2.5 million in 2008.

The dollar began the week lower as a Federal Reserve official urged the continuation of stimulus programs and as home sales in October greatly exceeded market expectations, revving up traders' taste for higher-yielding assets.

In late New York trading yesterday, the 16-nation euro rose to US$1.4973 from US$1.4857, while the British pound jumped to US$1.6621 from US$1.6481. The dollar was nearly flat at 89.02 Japanese yen from 88.96 yen.

And gold prices surged to a new record high of US$1,174 an ounce as investors looked for an alternative investment to a declining buck. The commodity is considered a hedge against the greenback because of its stable store of value.

In other Nymex trading, heating oil rose less than a penny to settle at US$1.9799 a gallon. Gasoline for December delivery fell less than a cent to settle at US$1.9794 a gallon. Natural gas for December delivery rose about 5 cents to settle at US$4.473 per 1,000 cubic feet.

In London, Brent crude for January delivery fell 26 cents to settle at US$77.46 on the ICE Futures exchange.


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