Commodities Report: December 3rd, 2010

Oil futures are higher this morning after ending yesterday at their highest levels in 25 months. The gains are being supported by the U.S. dollar falling against other currencies as concerns over Europe's debt problems waned and traders looked to take on more risk.

Gold is down slightly today, reflecting the rising risk trade.

At last look, crude oil for January delivery was $88.08 a barrel, $0.08 above Thursday's close. The steady rise for oil over the past two days has been carried by rising confidence in the U.S. economy -- despite this morning's disappointing November payrolls report -- and is helping fuel new M&A activity in the sector as companies position themselves for future demand.

In today's moves, Walter Energy (WLT) said it was buying Western Coal Corp (WTN.TO) for $3.3 billion, creating a company with combined capacity of 385 million tons of coal. Exxon Mobil Corp (XOM) and Chevron Corp (CVX)., meanwhile, were shaking off persistently low natural gas prices in recent months to sign separate development pacts for deepwater well off Indonesia.

Front-month natural gas contracts were flat to slightly higher this morning around $4.33 per million cubic square feet.

Wheat and other grains also are poised for their second weekly advance in a row, climbing just under 10% through yesterday's close on weather woes in the U.S., China and Australia will hurt global supplies.

Wheat futures for March delivery settled at $7.575 a bushel at the Chicago Board of Trade yesterday after earlier reaching $7.675, its highest level since early August. Analysts said rain is slowing the harvest in Australia, increasing pressure on American farmers to keep up with demand just as the major wheat-growing regions become more parched.

Several areas in China also are experiencing near-drought conditions, according to the Ministry of Agriculture.