Bloomberg News

Crude Oil Rises in New York as Euro Rebounds From Six-Month Low

September 12, 2011

Sept. 12 (Bloomberg) -- Crude oil rose for the first time in three days in New York as the euro rebounded from a six-month low, increasing the appeal of commodities as an alternative investment to the U.S. dollar.

Crude advanced as the euro and equities erased losses caused by concern that Europe’s debt crisis will limit economic growth after the Financial Times reported that Italy was in talks with a Chinese investment firm to buy bonds. The price difference between West Texas Intermediate futures traded in New York and Brent in London shrank the most in three weeks.

“Oil held in positive territory even after the euro and the equity markets came under pressure, indicating there’s a little underlying strength in WTI today,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The Brent-WTI spread made an all-time high last week at above $27 and is now taking about $3 out of it.”

Oil for October delivery gained 95 cents, or 1.1 percent, to settle at $88.19 a barrel on the New York Mercantile Exchange. Futures traded between $85 and $88.95 a barrel today. Prices have fallen 3.5 percent this year.

The European common currency was little changed at $1.3658 at 3:55 p.m. in New York after erasing an intraday drop of 1.2 percent to $1.3495, the lowest intraday level since Feb. 16.

Brent Slips

Brent oil for October settlement slipped 52 cents, or 0.5 percent, to settle at $112.25 a barrel on the London-based ICE Futures Europe Exchange.

The European benchmark contract was at a premium of $24.06 to U.S. futures, the narrowest spread since Aug. 29 on a settlement basis. The differential shrank $1.47 a barrel today, the most since Aug. 22. The spread reached a record $27.22 in intraday trading on Sept. 6.

“Part of it is the spread trade,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said of the rally in New York futures. “The entire appetite for risk trade seems to be based on the idea that the economy looks so bad right now that it can’t possibly get any worse.”

Oil in New York dropped as much as 2.6 percent in intraday trading and equities and the euro plunged on speculation that German Chancellor Angela Merkel is preparing for a Greek debt default.

A plan for jobs growth announced by President Barack Obama on Sept. 8 failed to boost confidence in the U.S., the world’s largest economy. The same day, Federal Reserve Chairman Ben S. Bernanke also disappointed investors by stopping short of announcing new stimulus measures.

Economic Outlook

“Crude’s simply reflecting views about where the economy is going,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “On days when economic indicators are good, crude goes up, and on days when indicators are bad and people think Greece is going to default, it goes down.”

The Standard & Poor’s 500 Index rose 0.6 percent to 1,161.05 at 3:57 p.m. in New York, and the Dow Jones Industrial Average gained 0.5 percent to 11,049.43.

Oil markets are likely to tighten during the rest of this year and into 2012 after the final release of crude from the U.S. Strategic Petroleum Reserve, according to a Goldman Sachs Group Inc. research note e-mailed today. The bank maintained its 2012 Brent oil price forecast at $130 a barrel.

Libya will be able to restore most of the oil production halted during fighting against Muammar Qaddafi in six months, and resume full capacity in 18 months, according to a report today from the Organization of Petroleum Exporting Countries. Libyan production plunged to 45,000 barrels a day last month from 1.59 million in January, before the conflict, according to Bloomberg estimates.

OPEC Forecasts

OPEC “marginally” lowered estimates for global oil consumption in 2012, and trimmed its 2011 assessment by 150,000 barrels a day, in a monthly report today.

Prices also increased after failing to breach an $85 a barrel support level during the day’s intraday decline.

“Crude’s got a base here around $85,” said Richard Ilczyszyn, a Chicago-based senior marketing strategist at MF Global Holdings Ltd.

Hedge funds cut bullish bets on oil last week while increasing those on gasoline. The funds and other large speculators reduced wagers that prices will rise, with the number of futures and options combined falling by 5,780, or 3.6 percent, to 155,837, according to the Commodity Futures Trading Commission’s Commitments of Traders report. Bets motor fuel will rally increased by 13 percent, the data showed.

In London, money managers raised bullish bets on Brent crude by 12 percent in the week ended Sept. 6, according to data from ICE Futures Europe.

Oil volume in electronic trading on the Nymex was 660,423 contracts as of 3:57 p.m. in New York. Volume totaled 677,483 contracts Sept. 9. Open interest was 1.49 million contracts.

--With assistance from Grant Smith in London. Editors: Richard Stubbe, Dan Stets

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net

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


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