Bloomberg News

Oil Surges Most Since May on Decline in Supplies, Economic Data

October 05, 2011

Oct. 5 (Bloomberg) -- Oil in New York rose the most in almost five months after the U.S. government reported an unexpected supply decline and economic data exceeded estimates.

Futures climbed 5.3 percent after the Energy Department said stockpiles fell 4.68 million barrels to 336.3 million last week. A gain of 1.5 million barrels was expected, according to a Bloomberg News survey. ADP Employer Services showed U.S. companies added more jobs than expected in September, and the Institute for Supply Management reported growth in services.

“The DOE report is bullish, any way you look at it,” said Carl Larry, director of energy derivatives and research with Blue Ocean LLC in New York. “The key to where prices move from here is the economy.”

Crude oil for November delivery increased $4.01 to settle at $79.68 a barrel on the New York Mercantile Exchange. Yesterday, futures dropped to $75.67, the lowest close since Sept. 23, 2010. Prices are down 13 percent this year.

Brent oil for November settlement rose $2.94, or 2.9 percent, to end the session at $102.73 a barrel on the London- based ICE Futures Europe exchange. The contract’s close yesterday represented a 21 percent drop since April 8, when prices ended the session at $126.65 a barrel. A 20 percent drop is the common definition of a bear market.

Crude imports fell 10 percent to 8.7 million barrels a day last week, the report showed. Imports on the Gulf of Mexico coast, the region known as PADD 3, tumbled 16 percent to 4.26 million barrels a day.

‘Lot Less Bullish’

“The numbers are a lot less bullish than they initially appeared,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It looks like refiners, especially along the Gulf Coast, are intentionally working down their stocks. It’s not a sign that there’s a shortage.”

Crude supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate oil, the U.S. benchmark, tumbled 831,000 barrels to 30.1 million, the lowest level since March 2010.

Gasoline supplies declined 1.14 million barrels to 213.7 million last week, the report showed. A 1.5 million-barrel increase was forecast, according to the median of 15 analyst projections in the Bloomberg News survey.

“Today’s report was bullish but I am still looking for spots to sell,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “We were at $90 a couple of weeks ago and have come down quite a lot. We dropped to the $75 area and found support and when it nears $80 I will sell.”

Recession Concern

Yesterday, oil dropped as much as 3.4 percent to $74.95, the lowest intraday level in more than a year, on concern the U.S. and Europe are moving into recession.

Economists surveyed by Bloomberg News projected that Roseland, New Jersey-based ADP would report an advance of 75,000 jobs. The Institute for Supply Management’s non-manufacturing index fell to 53 in September from 53.3 in August, beating the median forecast of 52.8. Readings above 50 indicate expansion.

Federal Reserve Chairman Ben S. Bernanke signaled yesterday he’ll push forward with further expansion of monetary stimulus if needed. He said that the Fed’s remaining tools to boost growth include giving more information about its pledge to keep interest rates low at least through mid-2013, reducing the rate paid on banks’ reserve deposits and buying more securities.

Macroeconomic Picture

“The inventory numbers were clearly bullish and supportive,” said Kyle Cooper, director of research for IAF Advisors in Houston. “Whether we hold onto today’s gains later this week will depend on the macroeconomic picture and what equities do.”

The Standard & Poor’s 500 Index rose 1.2 percent to 1,137.33 at 2:30 p.m., when the Nymex floor closed, and the Dow Jones Industrial Average gained 0.8 percent to 10,892.04. Both indexes extended gains after the close.

The Organization of Petroleum Exporting Countries’ basket of oil grades fell to $98.59 yesterday, the lowest level since Feb. 14. The group last met in June, when six members including Iran rejected a Saudi proposal to replace lost Libyan barrels. OPEC next meets on Dec. 14 in Vienna.

“I’m sure that when Brent dropped below $100 someone at OPEC was taking note,” said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. “The recent price move will be taken into account when they meet in December.”

Saudi Arabia, OPEC’s biggest oil producer, vowed to use “an iron fist” after 11 members of the security forces were injured by attackers during unrest in the Shiite Muslim town of Awwamiya in the east, the official Saudi Press Agency said. The government accused an unnamed “foreign country” of seeking to undermine stability, the news service reported.

“There’s a little unrest in the Eastern Province of Saudi Arabia, which is always a cause for concern,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.3 billion.

Oil volume in electronic trading on the Nymex was 586,593 contracts as of 3:30 p.m. in New York. Volume totaled 789,626 contracts yesterday, 19 percent above the average of the past three months. Open interest was 1.43 million contracts.

--Editors: Richard Stubbe, Dan Stets

To contact the reporters 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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