Bloomberg News

Oil Rises to Highest Level in Almost 6 Weeks on Supply Forecast

September 13, 2011

Sept. 13 (Bloomberg) -- Crude climbed above $90 a barrel in New York to the highest level in almost six weeks on speculation a report tomorrow will show supplies fell in the U.S., the biggest oil-consuming country.

Futures increased 2.3 percent before the Energy Department report that may show supplies declined by 3 million barrels last week because of storms in the Gulf of Mexico. Prices also advanced after German Chancellor Angela Merkel said she’s confident Europe will find a solution for Finland’s objections to Greece’s bailout.

“We are probably going to see a big drop in tomorrow’s report because of Tropical Storm Lee and the remnants of Hurricane Irene,” said Phil Flynn, vice president of research at PFGBest in Chicago. “There’s also talk that the Europeans will announce new ideas for the bailout for Greece.”

Crude oil for October delivery advanced $2.02 to $90.21 a barrel on the New York Mercantile Exchange, the highest settlement since Aug. 3. Prices have increased 17 percent in the past year.

Prices slipped from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles fell 5.05 million barrels to 344.2 million. October oil gained $1.58, or 1.8 percent, to $89.77 a barrel in electronic trading at 4:33 p.m.

Brent oil for October settlement declined 36 cents, or 0.3 percent, to end the session at $111.89 a barrel on the London- based ICE Futures Europe Exchange.

The European benchmark contract’s premium to U.S. futures narrowed to $21.68 from $24.06 yesterday and the record of $26.87 on Sept. 6, based on settlement prices.

Weaker Brent

“We’re seeing Brent get weaker, which makes sense given Europe’s economic problems and the prospect that we’ll soon start to see dribs and drabs of Libyan oil come on the market,” said Rick Mueller, a principal with ESAI Energy LLC in Wakefield, Massachusetts.

The Energy Department may say crude inventories dropped to 350.1 million barrels last week, according to the median of 14 analyst estimates in a Bloomberg News survey. Gasoline stockpiles probably fell 500,000 barrels to 208.3 million, the survey showed.

Output in the Gulf of Mexico, which accounts for 27 percent of U.S. supply, was cut 61 percent last week after Tropical Storm Lee shut production platforms.

Oil in London fell after the International Energy Agency reduced its estimate of 2012 global oil demand by 400,000 barrels a day and for 2011 by 200,000. Worldwide demand will rise by 1.2 percent to 89.3 million barrels a day this year and by 1.6 percent to 90.7 million next year.

‘Long and Difficult’

The full resumption of Libyan exports following the ouster of Muammar Qaddafi will be “long and difficult,” the Paris- based agency said in a monthly report. The IEA is an energy policy adviser to 28 industrialized nations including the U.S., Japan and Germany.

Merkel said she’s “very optimistic” that Finland’s demands for special collateral as part of the Greek bailout package will be met within the parameters of measures agreed by euro-area leaders. Merkel spoke in Berlin today after meeting with Finnish Prime Minister Jyrki Katainen.

Katainen said Sept. 7 that his country may not contribute to a second Greek bailout package if demands for collateral in exchange for new loans aren’t met. Finland is at the center of a collateral dispute that threatens to stall Greece’s second rescue package and exacerbate Europe’s debt crisis.

Demand for Collateral

Merkel said that Greece is taking the right steps to get its next bailout payment, warning against allowing a Greek default because of the risk of contagion for other countries. An “uncontrolled insolvency” would roil markets, she told Berlin- based broadcaster Inforadio.

“These markets are on a hair trigger,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “Every rumor coming out of Europe has an impact because nobody knows how the euro crisis will be resolved. It’s clear that without further help Greece is toast.”

Italian officials spoke in the past few weeks with Chinese counterparts about investing in the country, an Italian official said yesterday. Finance Minister Giulio Tremonti met with Chinese officials in Rome earlier this month, his spokesman Filippo Pepe said by phone today. Italy joins Spain, Greece, Portugal and investment bank Morgan Stanley among distressed borrowers that have turned to China since 2007.

Oil volume in electronic trading on the Nymex was 742,518 contracts as of 4:33 p.m. in New York. Volume totaled 745,286 contracts yesterday, little changed from the average of the past three months. Open interest was 1.49 million contracts.

--Editors: Richard Stubbe, Dan Stets

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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


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