Bloomberg News

Oil Rises to Two-Week High on European Pledge to Contain Debt

October 10, 2011

Oct. 10 (Bloomberg) -- Crude oil climbed to the highest level in two weeks as the leaders of Germany and France pledged to stem the European sovereign-debt crisis.

Futures gained 2.9 percent after German Chancellor Angela Merkel and French President Nicholas Sarkozy said yesterday they will deliver a plan to recapitalize the region’s banks and address the Greek crisis by Nov. 3. The euro surged against the dollar after the announcement. U.S. employers added more workers in September than forecast, a report showed Oct. 7.

“Optimism is coming back into the market,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “As concerns about the European debt crisis and the U.S. economy heading into recession ease, oil prices are going to climb. These headlines are a sign that demand will increase.”

Crude oil for November delivery rose $2.43 to $85.41 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 21. Futures, which have gained 13 percent in four days, are down 6.5 percent this year.

Brent oil for November settlement increased $3.07, or 2.9 percent, to $108.95 a barrel on the London-based ICE Futures Europe exchange.

The euro advanced the most in more than a year against the dollar after Merkel said yesterday in Berlin that European leaders will do “everything necessary” to ensure that banks have adequate capital.

Euro Advances

The euro gained 2 percent to $1.3644 at 3:06 p.m. in New York. Earlier, it touched $1.3699. A stronger European currency increases the appeal of raw materials as an alternative investment. The shared currency weakened on Oct. 7 after Fitch Ratings lowered Spain’s foreign and local debt to AA- from AA+ and cut Italy’s to A+ from AA-, citing an “intensification” of the region’s crisis.

The Standard & Poor’s GSCI Index of 24 commodities gained 2 percent to 618.68, the highest level since Sept. 21. Twenty-two of the commodities advanced, led by sugar, lead, silver and oil.

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

Oil capped the biggest weekly gain in seven months last week as larger-than-forecast U.S. jobs growth eased concern that the economy is slowing.

“Eighty-five dollars is probably fair value for crude, with a $5 to $10 range around it,” said Kyle Cooper, director of research for IAF Advisors in Houston.

Stocks Rise

U.S. stocks surged, with the Standard & Poor’s 500 Index poised for its biggest rally in a month. The index rose 2.6 percent to 1,185.60 at 3:07 p.m. in New York, and the Dow Jones Industrial Average increased 253.54 points, or 2.3 percent, to 11,356.66.

The Stoxx Europe 600 Index posted its biggest four-day gain since 2008. It advanced 1.7 percent to 235.94 at the 4:30 p.m. close in London, extending the gauge’s rally over the past four days to 8.5 percent.

The Organization of Petroleum Exporting Countries is likely to keep oil output targets unchanged when it meets in December, Mohammad Ali Khatibi, an Iranian representative to the group, said yesterday. Producers and consumers are satisfied with the current price level for crude, Ali Khatibi said, according to Shana, the Iranian Oil Ministry’s news website.

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.

“Demand is always fluctuating, but our position is we would supply whatever our customers are asking for,” he told reporters Oct. 8 in Dhahran.

Funds Cut Bets

Hedge funds cut bullish bets on oil for a third week through Oct. 4 as concern that slowing economic growth will reduce fuel demand sent crude to a one-year low just before it rallied for four straight days.

The funds and other large speculators reduced wagers on rising U.S. 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. Oil fell 10 percent during the period covered by the report before all but erasing the decline through the rest of the week. Bullish bets on Brent crude futures also declined.

Oil volume in electronic trading on the Nymex was 469,803 contracts as of 3:08 p.m. in New York. Volume totaled 747,117 contracts Oct. 7, 11 percent above the average of the past three months. Open interest was 1.43 million contracts.

--With assistance from Lananh Nguyen in London and Moming Zhou in New York. Editors: Richard Stubbe, Dan Stets

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