Bloomberg News

Crude Oil Climbs to Three-Week High on Signs of Economic Growth

July 05, 2011

July 5 (Bloomberg) -- Crude oil climbed to the highest price in three weeks on signs of economic growth in the U.S. and China, the world’s two biggest oil consumers.

Oil rose 2.1 percent as data showed orders placed with U.S. factories increased in May, indicating manufacturing may rebound from a slowdown. China’s services industries expanded at the second-fastest pace this year as new orders and employment climbed.

“As long as we can see the economy growing, we are going to see more strength in oil,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. “Oil may rise to $100 this month.”

Crude for August delivery gained $1.95 to $96.89 a barrel on the New York Mercantile Exchange, the highest settlement price since June 14. Futures have gained 34 percent in a year.

Floor trading was closed yesterday for the U.S. Independence Day holiday and electronic trades will be booked with today’s transactions for settlement purposes.

Brent oil for August settlement advanced $2.22, or 2 percent, to $113.61 a barrel on the ICE Futures Europe exchange.

Oil also advanced as the Standard & Poor’s GSCI Index of 24 raw materials increased for the first time in three days. The S&P GSCI Index jumped 1.7 percent to 675.35, led by silver, wheat and corn.

“The commodity indexes are strong, so it seems like we’re following them,” said Kyle Cooper, director of research for IAF Advisors in Houston.

Durable Goods Orders

Bookings for manufacturers’ goods in the U.S. rose 0.8 percent, less than forecast, after a revised 0.9 percent decline in April that was smaller than previously estimated, figures from the Commerce Department showed today in Washington.

Demand for durable goods that are meant to last at least three years increased 2.1 percent, while unfilled orders climbed the most since September, department data showed.

A purchasing managers index in China was 54.1 in June compared with 54.3 in May, HSBC Holdings Plc and Markit Economics said in a statement today. A reading above 50 indicates expansion.

Barclays Plc increased its 2012 estimates for North Sea Brent and U.S. benchmark West Texas Intermediate crude grades.

The bank raised its Brent forecast to $115 a barrel, up $10 from its previous estimate on March 24, Barclays analysts led by Paul Horsnell in London said in a report today. The bank increased its 2012 outlook for WTI by $4 to $110.

‘Robust Demand’

“Demand forecasts show a continuation of robust emerging market demand,” Horsnell wrote. “China remains the strongest individual component of global oil demand.”

Global oil demand will increase by 1.38 million barrels a day next year to average 90.6 million, Barclays analysts said.

“We do not think China will sacrifice its growth to contain inflation,” said Harry Tchilinguirian, London-based head of commodity-markets strategy at BNP Paribas SA.

Saudi Arabian Oil Co., the world’s largest crude exporter, cut official selling prices for August shipments of light crude grades to customers in Asia.

The state-owned producer, known as Saudi Aramco, reduced the price for Arab Extra Light crude to Asia by 50 cents a barrel to $2.95 above the benchmark, the company said today in an e-mailed statement.

“It seems particularly bullish when we consider that Saudi Aramco is cutting prices and we still see” higher prices in oil futures, Larry said.

Aid to Greece

European finance ministers approved an 8.7 billion-euro ($12.6 billion) aid payment to Greece on July 2.

“The economic outlook looks better and the Greek situation looks significantly improved and is no longer a major concern for people,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “That’s giving people a lot of optimism about the economy in Europe and the U.S.”

Hedge funds and other large investors cut their bullish bets on crude oil by 8.6 percent to 153,148 futures equivalents in the week ended June 28, the lowest level since Nov. 26.

The number of rigs drilling for oil in the U.S. gained by three to 1,006 last week, the 11th consecutive week the count has reached the highest level since Houston-based Baker Hughes Inc. separated the oil and natural gas rig counts in 1987.

Oil volume in electronic trading on the Nymex was 465,805 contracts as of 3:33 p.m. in New York. Volume totaled 521,407 contracts on July 1, 24 percent above the average of the past three months. Open interest was 1.52 million contracts.

--With assistance from Grant Smith and Lananh Nguyen in London, Alex Kowalski in Washington, Anthony DiPaola in Dubai. Editors: Richard Stubbe, Dan Stets

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net. Moming Zhou in New York at Mzhou29@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.


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