Oil prices soar to around $70

HOUSTON -- Oil prices surged 11 percent in Election Day trading as the dollar fell against major currencies.

Crude prices moved in tandem with global markets, which jumped from Asia to Europe. The Dow Jones industrial average soared 300 points despite a new Commerce Department report that said factory orders fell 2.5 percent in September from August, much worse than the 0.7 percent drop analysts had predicted.

Still, gasoline prices continued to tumble, a fact lost on many Americans headed to the polls with the U.S. housing market in turmoil and thousands of jobs already lost.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said the weaker dollar in particular likely attracted some people to oil.

The euro rose more than 4 cents Tuesday to $1.30. The dollar lost ground to the yen, the pound and other currencies as well.

Investors see commodities such as oil as a hedge against inflation and a weak dollar and pour into the crude futures market when the greenback falls. A weak dollar also makes oil less expensive to buyers dealing in other currencies.

Light, sweet crude for December delivery rose $6.82 to $70.73 a barrel on the New York Mercantile Exchange. Oil rose as high as $71.77

"Anytime oil rises more than $4 a barrel, it's usually myriad items at play," Ritterbusch said. "When the Dow is up, the world is good and nobody wants the dollar as a safe haven."

Ritterbusch and other analysts said there were reports that Saudi Arabia had already informed customers it was slashing production.

Few analysts, however, could pin down exactly what was happening in oil markets, which have been extraordinarily volatile early this week.

"The fact that we're up $6 is indicative of everything we've seen recently in the stock markets," said trader and analyst Stephen Schork. "People don't know what to do. We're seeing record swings in the stock market and the dollar is just getting pummeled."

Crude prices on Monday fell $4.46, only to erase those losses Tuesday.

Monday's fall was precipitated by U.S. manufacturers reporting lethargic activity numbers for October and weak U.S. auto sales.

Adding to the gloomy outlook, Credit Suisse cut its forecast for growth in China's oil demand next year to nearly zero from 4 percent on the back of lower economic growth forecasts.

"The latest set of economic data out of China suggests a much more severe economic slowdown is under way there. Hopes of even a slightly decoupled China in 2009 are fading fast," Credit Suisse said in a report.

Oil industry analysts had believed the booming economies of India and China would pick up any slackening of demand if Western nations went into recession. That view has weakened in recent months, as the economic crisis in the United States spread across the globe.

Oil prices have fallen roughly $80 from their July peak around $147. In October alone, crude prices tumbled 32 percent.

Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore, said he expects oil to continue trading within its recent $60 to $70 band.

The recent output cut by the Organization of Petroleum Exporting Countries is likely to achieve a "fairly good level" of compliance from member nations, creating a floor for the oil price, he said.

But a second cut at OPEC's next meeting in December seems unlikely and would be difficult to implement, Shum said.

To keep prices from falling further, Venezuela's Oil Minister Rafael Ramirez has said OPEC, which controls about 40 percent of world crude oil production, will need to cut production by at least 1 million barrels daily on top of the already announced cut of 1.5 million barrels a day.

One quick benefit of falling oil prices has been less pricey gasoline in the U.S. and elsewhere.

Gasoline futures rose more than 2 pennies to $1.39 a gallon, after a steep fall overnight on the Nymex.

At a national average of $2.39 a gallon for regular gasoline, the price is $1.13 a gallon lower than a year ago, according to auto club AAA, the Oil Price Information Service and Wright Express.

AAA fuel price analyst Geoff Sundstrom said a weak holiday travel season could push the national average to $2 a gallon by year's end, with a rally unlikely until spring at the earliest.

In other Nymex trading, heating oil gained more than 21 cents at $2.20 a gallon while natural gas for December delivery rose more than 46 cents to fetch $7.30 per 1,000 cubic feet.

In London, December Brent crude rose $6.64 to $67.12 on the ICE Futures exchange after plummeting $4.84 overnight.