Bloomberg News

Oil Gains a Fourth Day After European Pledge to Contain Debt

October 10, 2011

Oct. 10 (Bloomberg) -- Oil climbed for a fourth day in New York as investors bet that fuel demand may increase after a pledge by European leaders to contain the region’s sovereign- debt crisis.

Futures rose as much as 2.1 percent after the biggest weekly gain in seven months. German Chancellor Angela Merkel and French President Nicolas Sarkozy gave themselves three weeks to stamp out the European crisis, causing the euro to gain against the dollar. U.S. employers added more workers in September than forecast, a report showed Oct. 7. OPEC is likely to keep oil output targets unchanged when it meets in December, Mohammad Ali Khatibi, an Iranian representative to the group, said yesterday.

Crude is rising on “high hopes for an imminent Eurozone bailout,” Andrey Kryuchenkov, a London-based analyst at VTB Capital, said in an e-mail. “Policymakers in the EU have few options and no one wants 2008 all over again.”

Crude for November delivery advanced as much as $1.77 to $84.75 a barrel in electronic trading on the New York Mercantile Exchange and was at $84.33 at 1:32 p.m. in London. West Texas Intermediate last week gained 4.8 percent, the biggest gain since the five days ended March 4. Prices are down 7.2 percent this year.

‘Broken Clear’

Oil’s moving average convergence-divergence, a technical indicator, showed positive price momentum on Oct. 7 for the first time in almost three weeks. Investors typically look for positive momentum to sustain buying of contracts.

“Technically, it’s starting to look quite interesting, because it looked as though we were going to return in West Texas terms to that $72 to $80 zone,” Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty Ltd. in Sydney, said by phone today. “We’ve now broken clear of that and it’s suggesting a bounce on the charts at least up into the low $90s a barrel.”

Brent oil for November was at $107.44 a barrel, up $1.56, on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $22.58 to New York crude, compared with a record of $26.87 on Sept. 6.

Merkel and Sarkozy said in Berlin yesterday that they will deliver a plan by Nov. 3 to recapitalize banks, get Greece on the right track and fix Europe’s economic governance. European leaders will do “everything necessary” to ensure that banks have adequate capital, Merkel said. A weaker dollar raises the appeal for assets used to protect against inflation, such as crude.

“The positive news during the weekend that Merkel and Sarkozy agreed on a bank recapitalisation spread encouraging signs across the markets,” Myrto Sokou, a London-based analyst at Sucden Financial Ltd. said in an e-mail. “The weaker U.S. dollar is certainly supportive for the oil market.”

Saudi Output

U.S. payrolls rose by 103,000 after a revised 57,000 gain in August, the Labor Department said Oct. 7. The median forecast in a Bloomberg News survey of economists called for an increase of 60,000. The jobless rate held at 9.1 percent. Reports last week showed growth accelerated in China’s services industries.

The U.S. employment data “reduced the fear of recession,” Ole Hansen, senior manager of trading advisory at Saxo Bank A/S in Copenhagen said by phone. He expects Nymex crude to target resistance at $85 a barrel.“A break of that could find another $5 to the upside,” he said.

Oil producers and consumers are satisfied with the current price level for crude, said Ali Khatibi, Iran’s governor to the Organization of Petroleum Exporting Countries, according to Shana, the Iranian Oil Ministry’s news website. OPEC is responsible for 40 percent of global oil output.

There’s no excess supply in world oil markets and Saudi Arabia has been adjusting output to match fluctuating demand over recent months, Oil Minister Ali Al-Naimi said Oct. 8. The kingdom is OPEC’s biggest producer.

Hedge funds cut bullish bets on oil for a third week as concern that slowing economic growth will reduce fuel demand. The funds and other large speculators reduced wagers on rising prices by 5.5 percent in the week ended Oct. 4 to the lowest level since Aug. 23, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Oct. 7.

On ICE, money managers’ bets that prices will rise, in futures and options combined, outnumbered short positions by 29,093 lots in the week ended Oct. 4, the exchange said in its weekly Commitment of Traders report. Net-long positions fell by 17,934 contracts, or 38 percent, according to bourse data.

--Editors: Raj Rajendran, Stephen Cunningham

To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net

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


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