Bloomberg News

Crude Oil Rises on U.S. Economy, German Passage of Bailout Bill

September 29, 2011

Sept. 29 (Bloomberg) -- Oil rose in New York as the U.S. government reported that the economy grew faster than previously estimated in the second quarter and German lawmakers approved an expanded European bailout fund.

Futures gained 1.1 percent after the increase in gross domestic product beat economists’ expectations. Consumer spending also rose more than forecast in the quarter and jobless claims dropped last week. Germany’s lower house of parliament agreed to extend the European Financial Stability Facility endorsed by Chancellor Angela Merkel.

“The GDP figure was better than expected, and that’s given the market a good old boost,” said Matt Smith, a commodities analyst with Summit Energy Services Inc. in Louisville, Kentucky. “The jobless numbers in conjunction with GDP and the personal consumption numbers have just buoyed the market after the positive news out of Europe.”

Crude for November delivery gained 93 cents to settle at $82.14 a barrel on the New York Mercantile Exchange after tumbling 3.8 percent yesterday amid concern that Europe’s debt crisis would trigger another global recession.

New York futures are down 7.5 percent this month and have dropped 14 percent since the end of June, heading for the biggest quarterly loss since the last three months of 2008. Prices have fallen 10 percent this year.

Brent oil for November settlement rose 14 cents to $103.95 a barrel on the London-based ICE Futures Europe exchange.

Economic Growth

The U.S. economy grew at a 1.3 percent pace in the second quarter, compared with a 1 percent gain calculated last month, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News was 1.2 percent, following a 0.4 percent increase in the first three months of the year.

GDP projections of 80 economists in the survey ranged from 1 percent to 1.5 percent. The government’s GDP estimate is the third and final one for the quarter.

“The GDP blew away expectations,” said Phil Flynn, vice president of research at PFGBest in Chicago. “All of the doom and gloom we were experiencing was probably overdone. There were worries that we had dropped into recession but technically that isn’t so.”

Jobless claims fell more than forecast last week as an atypical calendar alignment made it more difficult for the government to adjust the data for seasonal variations, another report showed. Applications for benefits dropped by 37,000 to 391,000, the fewest since April, the Labor Department said. An agency official said the data probably reflected a “slight mistiming” in the seasonal factors used to modify the figures.

Consumer Spending

Consumer spending rose at a 0.7 percent annual pace, up from a previously reported 0.4 percent gain. Household purchases in the first quarter climbed at a 2.1 percent annual pace.

The number of contracts to purchase previously owned U.S. homes fell 1.2 percent in August, better than the 2 percent drop forecast by economists in a Bloomberg survey.

In Germany, the lower house of parliament passed the measure to expand the firepower of the euro-area’s rescue fund with a vote of 523 to 85. The country’s upper house will vote on it tomorrow.

“Obviously the extension of the European Financial Stability Facility would have an impact on growth in Europe, and then other countries, and that’s why the market is reacting so strongly,” said Christophe Barret, a London-based analyst at Credit Agricole CIB.

The bill grants the EFSF powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. It raises Germany’s guarantees to 211 billion euros from 123 billion euros.

European Confidence

The move came as European confidence in the economic outlook dropped more than economists forecast in September to the lowest level in almost two years, according to the European Commission in Brussels. The prospect of a default in Greece and instability in other European countries has roiled financial markets for months.

About three-quarters of those questioned in a Bloomberg survey this week said the euro-area economy will fall into recession during the next 12 months and 53 percent said turmoil will worsen in a banking sector laden with government bonds, according to the quarterly Global Poll of 1,031 investors, analysts and traders who are Bloomberg subscribers.

The euro gained 0.1 percent to $1.356 in New York at 3:07 p.m. in New York, its third increase this week. Earlier, it touched $1.3679 on the German move. A stronger euro and weaker dollar boosts the appeal of commodities as an alternative investment.

Oil volume in electronic trading on the Nymex was 517,731 contracts as of 3:08 p.m. in New York. Volume totaled 499,772 contracts yesterday, 24 percent below the average of the past three months. Open interest was 1.38 million contracts.

--With assistance from Mark Shenk in New York and 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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