Oil Rises to Record Above $144 as ECB Rate Gain May Spur Buying

By Christian Schmollinger

July 3 (Bloomberg) -- Crude oil rose to a record above $144 a barrel in New York as the European Central Bank is poised to increase interest rates and U.S. stockpiles unexpectedly fell to their lowest since January.

Economists are forecasting the ECB will raise its 4 percent benchmark rate by a quarter percentage point today, weakening the dollar and spurring commodity buying as an inflation hedge. Investors are purchasing oil, which has doubled this past year, as U.S. equities slump, with the Standard & Poor's 500 Index falling yesterday to its lowest level in two years.

``In this market, breaking the $145 level will be important and we should be reaching $150 within two days,'' said Tetsu Emori, a fund manager with Astmax Ltd. in Tokyo. ``The current market is being driven by the weaker dollar and with the equity markets a disaster, investment money is looking for a more- profitable market.''

Crude oil for August delivery climbed as much as $1, or 0.7 percent, to $144.57 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since trading began in 1983. It was at $144.45 at 3:07 p.m. in Singapore.

Surging oil prices are starting to slow growth in some emerging economies. The Philippine central bank said inflation will probably accelerate to 10 percent or higher this year. Economists are forecasting Indonesia will raise interest rates after prices gained 11 percent last month.

U.S. oil supplies dropped 1.98 million barrels to 299.8 million last week, the Energy Department said yesterday. Analysts assumed a gain of 500,000 barrels.

European Rates

``The combination of the weaker U.S. dollar along with the bullish inventory data, that's what spurred prices to the highs,'' said Toby Hassall, a research analyst at Commodity Warrants Australia in Sydney. ``If the ECB raises rates, we'll see more weakness in the dollar and upward pressure on U.S. denominated commodities such as crude.''

The ECB will increase its main refinancing rate by a quarter-percentage point, according to 57 of 58 economists surveyed by Bloomberg News.

The dollar traded near a two-month low against the euro, dropping to $1.5891 per euro, the weakest level since April 24, before trading at $1.5875 at 12:51 p.m. in Tokyo, compared with $1.5882 yesterday.

Russian Forecasts

Russian President Dmitry Medvedev said that high oil prices are a ``reality that everyone has to take into account.'' He said the influence of the Organization of Petroleum Exporting Countries is ``exaggerated'' and the group's decisions don't always have a ``long-term impact on oil prices.'' Russia is the world's second-largest crude producer.

``I have said that oil prices will reach $150 a barrel,'' Medvedev said in a meeting with reporters late yesterday in Moscow ahead of his participation in a summit of the Group of Eight industrial countries in Japan next week. ``Unfortunately, rising oil prices create problems for the world's economy.''

The surge in prices of diesel, jet fuel and gasoline has cut profits at airlines and caused car sales to drop. Southeast Asian nations including India, Malaysia and Indonesia raised fuel prices in the past two months to cap government subsidies as oil costs jumped.

Cathay Pacific Airways Ltd., Hong Kong's largest airline, may post a loss this year because of soaring jet-fuel prices, according to a report by Cazenove Asia Ltd. Cathay yesterday warned that earnings this year would be ``disappointing.''

General Motors

General Motors Corp. shares fell yesterday to their lowest level since 1954 after a Merrill Lynch & Co. analyst said the automaker may need to raise as much as $15 billion and faces the possibility of bankruptcy. The company's June U.S. auto sales fell 18 percent, as rising gasoline prices damped demand for pickups and sport-utility vehicles.

Sales at Ssangyong Motor Co., the South Korean unit of China's biggest automaker, sank 32 percent last month as domestic customers shunned its sport-utility vehicles.

Brent crude for August delivery climbed as much as $1.49, or 1 percent, to a record $145.75 a barrel on London's ICE Futures Europe exchange. It was at $145.40 at 3:09 p.m. Singapore time.

U.S. gasoline inventories rose 2.1 million barrels to 210.9 million and supplies of distillate fuel, including heating oil and diesel, increased 1.3 million barrels to 120.7 million barrels, the Energy Department said in its report today.

The margin for turning three barrels of crude into two of gasoline and one of heating oil rose 6.4 cents to $12.678 a barrel, based on futures prices. That's 38 percent lower than $20.5140 reached on June 3.

Refineries operated at 89.2 percent of their capacity, the department reported, 0.6 percentage point higher than the week before. Refiners operated at 90 percent of capacity a year earlier.