By Mark Shenk (Bloomberg) – Crude oil rose as the dollar dropped to a 15-month low against the euro and a government report showed that U.S. fuel demand gained for a second week.

Oil increased as much as 1.6 percent after the greenback retreated on the Federal Reserve’s signal that it will tolerate a weaker currency. A lower dollar bolsters the appeal of commodities as an alternative investment. Consumption of gasoline and other fuels climbed 2.8 percent in the past two weeks, an Energy Department report showed.

“The primary reason for higher oil prices is the falling dollar,” said Michael Fitzpatrick, vice president of energy with MF Global in New York. “There were no big surprises in today’s inventory report.”

Crude oil for January delivery rose $1.18, or 1.6 percent, to $77.20 a barrel at 1:17 p.m. on the New York Mercantile Exchange. Prices are up 73 percent this year.

Oil traded at $75.58 before the release of the inventory report at 10:30 a.m. in Washington.

There will be no floor trading in New York tomorrow because of the U.S. Thanksgiving holiday, and the exchange will close early on Nov. 27.

“Due to the holiday, I won’t attach a lot of importance to any directional moves until we come in next Monday,” Fitzpatrick said.

The Federal Open Market Committee called the dollar’s depreciation “orderly” in minutes of its November meeting released yesterday. The U.S. currency traded at $1.5093 against the euro, after reaching $1.5096, the weakest level since Aug. 8, 2008.

Prices also advanced after the number of Americans filing claims for unemployment benefits fell last week to the lowest level since September 2008, a signal that the economy of the world’s biggest-energy consuming country is recovering.

‘Descent of the Dollar’

“The continuing descent of the dollar is buoying crude,” said John Kilduff, partner at Round Earth Capital, a New York- based hedge fund that focuses on food and energy-commodity investments. “The market lagged earlier today because of the durable goods number. As the dollar breaks down, we can ignore cloudy economic numbers.”

The Commerce Department reported today that U.S. orders for durable goods unexpectedly declined last month. The 0.6 percent decrease in bookings followed a revised 2 percent gain in September. Economists forecast durable-goods orders would increase 0.5 percent, according to the median of 75 projections in a Bloomberg News survey.

U.S. Inventories

Stockpiles of crude oil increased 1.02 million barrels to 337.8 million in the week ended Nov. 20, according to the Energy Department. A 1.5 million-barrel increase was forecast, according to the median the median of 16 estimates by analysts in a Bloomberg News survey.

A drop in oil supplies on the U.S. West Coast was responsible for the smaller-than-forecast size of the nationwide increase, the Energy Department report showed. Stockpiles there tumbled 3.03 million barrels to 54.1 million. The region’s distribution system is isolated from the rest of the country.

Stockpiles along the Gulf Coast rose 2.88 million barrels to 171.1 million. Supplies in the region, home to about 50 percent of the nation’s refining capacity, declined 6.2 million barrels in the week ended Nov. 13, as Hurricane Ida shut ports.

“You really have a choice of targets in this week’s report,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “If you are a bull you can look at the demand number, while a bear would focus on the inventory gain.”

Gasoline inventories climbed 1 million barrels to 210.1 million last week, the report showed. A 300,000 barrel gain was forecast. Supplies of distillate fuel, a category that includes heating oil and diesel, dropped 529,000 barrels to 166.9 million. Analysts were split over whether inventories of the fuels rose or fell in the week ended Nov. 20.

Saudi Target

JPMorgan Chase & Co. raised its forecast for New York crude in the first quarter of next year to $70 a barrel from $65, as it expects Saudi Arabia, the world’s largest supplier, to secure its target price. The desert kingdom’s King Abdullah has targeted $75 as a fair price for consumers and producers.

“Saudi Arabia is currently in the driving seat and wants a $68 to $73 a barrel range,” Lawrence Eagles, head of commodities research at JPMorgan, said in the report. “On the demand side, Chinese apparent demand seems to be ramping up.”

Brent crude oil for January delivery on the London-based ICE Futures Europe exchange rose $1.43, or 1.9 percent, to $77.89 a barrel.

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