Bloomberg News

Oil Advances From Two-Week Low as Lawmakers Reach Debt Agreement

August 01, 2011

Aug. 1 (Bloomberg) -- Oil advanced from a two-week low in New York after President Barack Obama said Congressional leaders approved a deal to raise America’s debt ceiling, stoking speculation the world’s biggest crude user will avoid a default.

Futures surged as much as 1.9 percent after Obama spoke from the White House and Senate Majority Leader Harry Reid endorsed the emerging accord between Republican leaders and the administration. The U.S. won’t default on its obligations, Senate Minority Leader Mitch McConnell said. A Labor Department report on Aug. 5 may show July payrolls rose by 90,000 workers.

“It’s a kind of relief for the market,” Thina Saltvedt, an analyst at Nordea Bank AB, said in a phone interview from Oslo. “Risk appetite is again increasing and investors are moving into more risky assets such as oil and commodities.”

Crude for September delivery rose as much as $1.85 to $97.55 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.73 at 1:05 p.m. London time. The contract dropped $1.74 to $95.70 on July 29, the lowest settlement since July 14. Prices gained 0.3 percent last month and are 19 percent higher the past year.

Brent for September settlement climbed $1.74, or 1.5 percent, to $118.48 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $21.74 to New York futures, compared with a record close of $22.63 on July 14.

“Brent is reacting to the tension in the Middle East escalating once again,” Ole Hansen, senior manager of trading advisory team at Saxo Bank A/S, said from Copenhagen.

Debt Deal

Congressional leaders are sifting through the details of the tentative bipartisan agreement to raise the debt ceiling, preparing to sell the deal to skeptical Republicans and Democrats ahead of possible votes today.

The deal would raise the $14.3 trillion debt ceiling through 2012, cut spending by about $1 trillion and call for enactment of a law shaving another $1.5 trillion from long-term debt by 2021 -- or institute punishing reductions across all government areas, including Medicare and defense programs, according to congressional officials.

“Prices moved sharply higher because of Obama’s speech,” said Ken Hasegawa, a commodity-derivatives sales manager at broker Newedge Group in Tokyo, who predicts oil will trade from $95 to $105 a barrel in the short term. “This market can avoid a collapse. The recovery of the global economy and increasing demand for winter fuels will push it higher.”

Chinese Manufacturing

A Chinese manufacturing index was higher than economists estimated in July, signaling the world’s second-biggest economy is withstanding interest-rate increases and tighter credit.

The Purchasing Managers’ Index was at 50.7 for July compared with 50.9 in June, the China Federation of Logistics and Purchasing said in a statement today. That was more than every forecast in a Bloomberg News survey of 13 economists. The median estimate was for a reading of 50.2.

Oil in New York also rose as hedge funds increased bullish bets on gasoline for a fifth consecutive week, pushing futures to the highest since May. Large speculators increased wagers on rising prices by 1.9 percent in the week ended July 26 as U.S. imports declined and falling refinery output crimped supply, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the highest total since April 11.

Hedge-funds and other money managers raised bullish bets on Brent by 8 percent in the week ended July 26, the London-based ICE exchange said today in its weekly Commitment of Traders report. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 98,733 contracts. Net-long positions increased by 7,571 contracts, from 91,162 a week earlier.

Syria Violence

Syria’s army pressed its attack on Hama as thousands took to the streets of Damascus and other cities to protest the killing of more than 140 people by President Bashar al-Assad’s security forces.

The two-day offensive has left 116 dead in Hama, as well as 25 in the eastern city of Deir al-Zour and six in Bukamal, Mahmoud Merhi, head of the Damascus-based Arab Organization for Human Rights, said in a telephone interview. The attack on Hama is one of the bloodiest episodes in Syria’s four-month uprising.

Oil and gas companies in the Gulf of Mexico are restoring production after Tropical Storm Don dissipated over Texas, the Bureau of Ocean Energy Management, Regulation and Enforcement said yesterday. About 6 percent of oil output and 3.5 percent of gas pumping in the Gulf was shut in as of 11:30 a.m. Central time, down from 11.9 percent and 6.2 percent respectively at the height of the storm, according to the bureau.

The Organization of Petroleum Exporting Countries’ crude output rose in July to the highest level since December 2008, led by gains in Saudi Arabia and Angola, according to a Bloomberg News survey. Production increased 245,000 barrels, or 0.8 percent, to average 29.565 million barrels a day, according to the survey of oil companies, producers and analysts.

--With assistance from Yee Kai Pin and Christian Schmollinger in Singapore, Lananh Nguyen in London and Ben Sharples in Melbourne. Editors: Raj Rajendran, Rob Verdonck.

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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