Oil Settles Above $79 on Increased Demand Outlook

Oil prices rose Tuesday as demand for oil products supported crude, outweighing pressure from a stronger dollar.

U.S. light, sweet crude for December delivery rose 24 cents to settle at $79.14 a barrel. The contract settled $2.55 higher at $78.90 on Monday. London Brent crude also rose.

Products futures rose on the promise of demand increases heading into the holiday season.

"There is a feeling that demand, after all, will improve in the upcoming holidays," said Mark Waggoner, president of Excel Futures in Huntington Beach, California.

Investors have scrutinized economic data in recent months for signs of global recovery and a potential rebound in energy demand.

"Today, we're seeing crude futures buck the trend as they are not at this point moving in the usual correlation with the dollar or the equities markets," said Andy Lebow, broker, MF Global, New York.

Wall Street stocks fell as a Federal Reserve report showed U.S. industrial production rose by just 0.1 percent in October, which was less than expected, as auto manufacturers scaled back following the end of the "cash for clunkers" incentive.

The dollar edged higher from its 15-month lows. A stronger dollar makes dollar-denominated commodities such as crude more expensive for investors and helps pressure prices.

Gold also fell as the dollar rose.

Expectations that the Federal Reserve would keep interest rates near zero for some time had been weighing on the dollar, fueling gains in dollar-priced raw materials and related commodity shares in recent weeks.

U.S. oil inventory data from industry group the American Petroleum Institute is due later on Tuesday and the government's figures follow on Wednesday.

Oil has rallied from below $33 last December even though global demand fell year-on-year for the first nine months of 2009 according to the International Energy Agency and demand in wealthy countries has not improved much.

Still, some analysts expect demand strength from emerging markets to more than compensate, leading to higher fuel consumption down the road.

"The market is increasingly expecting EM (emerging markets) demand to crowd out future OECD demand growth, and is putting upward pressure on long-dated prices, leaving the market in a new higher trading range of $75 to $82," Goldman Sachs said in a report.

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