Bloomberg News

Oil Trades Near Three-Week High; MF Global Says $105 Possible

June 01, 2011

June 1 (Bloomberg) -- Oil traded near the highest in three weeks on speculation shrinking U.S. crude supplies and Europe’s steps to stem its debt crisis signal fuel demand will rise.

Futures climbed as much as 0.5 percent earlier, after gaining 2.1 percent yesterday, as analysts surveyed by Bloomberg News predicted U.S. inventories dropped last week. EU leaders will decide on additional help for the Greek economy by the end of this month, according to Jean-Claude Juncker, head of the group of euro-area finance ministers. Prices may rise to $105 a barrel in “a few days”, MF Global Holdings Ltd. said today.

“There’s a little bit of relief in the Greek world and that’s suggesting a bit more demand,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney, who forecasts oil will average $100 this year.

Crude for July delivery was at $102.79 a barrel, up 9 cents, or 0.1 percent, in electronic trading on the New York Mercantile Exchange at 3:03 p.m. Singapore time. The contract rose as much as 52 cents to $103.22. Prices climbed $2.11 to $102.70 yesterday, the highest since May 10. Oil slipped 9.9 percent in May, the first decline in nine months.

Brent crude for July delivery was down 3 cents at $116.69 a barrel on the London-based ICE Futures Europe exchange. The contract yesterday increased $2.05, or 1.8 percent, to $116.73. Prices slid 7.3 percent in May and are 61 percent higher the past year.

U.S. Inventories

A Energy Department report tomorrow may show U.S. crude stockpiles declined 1.8 million barrels last week from 370.9 million, a Bloomberg News survey of analysts shows. Refiners are expected to raise output by 0.5 percentage point to 86.8 percent of capacity as they ramp up gasoline production for the summer demand season.

Motor fuel supplies probably increased 650,000 barrels, the survey shows. Gasoline consumption peaks between Memorial Day, which this year fell on May 30, and Labor Day in early September, when Americans traditionally take vacations.

Inventories of distillates, a category that includes heating oil and diesel, were probably unchanged at 141.1 million barrels, according to the median estimate in the survey.

Oil tanks at Cushing, Oklahoma, were at 86 percent of working storage capacity as of the end of March, the Energy Department said yesterday. It’s the first time the department has published a utilization figure for the delivery point for the West Texas Intermediate grade, said Jonathan Cogan, an EIA spokesman.

Keystone Pipeline

Calgary-based TransCanada Corp. has shut the 591,000 barrel-a-day Keystone pipeline, which ends at Cushing, after “an issue with a fitting” caused a 40-barrel oil leak at a pump station, according to an e-mailed statement from Terry Cunha, a company spokesman. There was no fault on the pipeline itself, he said.

The spread between Brent crude and U.S. prices narrowed following the outage. The European benchmark contract traded at a premium of $13.77 a barrel to U.S. futures, compared with $14.03 yesterday. The difference between front-month contracts in London and New York reached a record $19.54 on Feb. 21. It averaged 76 cents last year.

Inspectors from the EU, the International Monetary Fund and the European Central Bank are set to wrap up a review of Greece’s progress in meeting the terms of last year’s 110 billion-euro ($159 billion) bailout in the next few days. “We will try to solve the Greek problem by the end of June,” said Juncker yesterday in Paris after meeting with French President Nicolas Sarkozy.

Oil at $105

Oil may rise to as high as $105 a barrel in “a few days” on rising commodity demand in China and a weakening U.S. dollar, according to MF Global.

Chinese consumption may offset a slowdown in the U.S. and “accommodative” monetary policy will boost the appeal of commodities, the New York-based futures and options broker said in a report today. Reduced spare production capacity in the Organization of Petroleum Exporting Countries will further support a “positive environment” for crude and investors should buy contracts around $100 a barrel, it said.

China’s Purchasing Managers’ Index was at 52 from 52.9 in April, the China Federation of Logistics and Purchasing said in an e-mailed statement today. The number was higher than the median forecast of 51.6 in a Bloomberg News survey of 16 economists. A reading above 50 indicates growth. The index has a seasonal pattern of falling in May, economists said before the release.

The expansion was the weakest in nine months. The nation, the world’s second-largest oil consumer, has been trying to slow growth to curb inflation.

--With assistance from Christian Schmollinger in Singapore. Editors: Alexander Kwiatkowski, Paul Gordon

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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