Bloomberg News

Oil Gains After Europe Pledges Debt Strategy; Bullish Bets Rise

October 17, 2011

Oct. 17 (Bloomberg) -- Oil extended gains from the highest close in almost a month after European leaders pledged to deliver a plan to keep their debt crisis from leading to recession and sapping demand for fuel.

Futures rose as much as 1.1 percent, adding to last week’s 4.6 percent climb, after Group of 20 finance ministers and central banks set an Oct. 23 deadline for a plan to avoid a Greek default, bolster banks and curb contagion. China may say tomorrow its economy grew more than 9 percent last quarter. Oil prices are being driven by “bear fatigue” and may drop in the first half of 2012, according to Morgan Stanley.

“It does look as if that extremely pessimistic view that the world was heading into recession, if not depression, is now changing and the overall investment view is what we’re looking at is a low-growth environment,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty Ltd. in Sydney. “Confirmation of the growth story in China will be important.”

Crude for November delivery gained as much as 91 cents to $87.71 a barrel in electronic trading on the New York Mercantile Exchange and was at $87.06 at 1:44 p.m. Singapore time. The contract settled at $86.80 on Oct. 14, the highest close since Sept. 20. Prices are down 4.8 percent this year.

Brent oil for December settlement climbed 2 cents to $112.25 a barrel on the London-based ICE Futures Europe exchange. Front-month futures rose 7.8 percent last week.

Narrowing Spread

The spread between December West Texas and Brent oil was at $25.02 a barrel today, according to data compiled by Bloomberg. The price difference narrowed from $27.88 on Oct. 14 as the London-traded future for November expired.

Crude surged on Oct. 14 after U.S. retail sales climbed 1.1 percent in September, the most since February, according to the Commerce Department in Washington. The median forecast of 85 economists surveyed by Bloomberg called for a 0.7 percent rise in purchases last month.

Hedge funds raised bullish oil bets by 7.8 percent in the week ended Oct. 11, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Oct. 14. Net-long positions betting on rising prices in West Texas Intermediate oil held by hedge funds, commodity pools and commodity-trading advisers, in futures and options combined increased 11,389 to 157,693.

Important Juncture

The increase “may be important at this juncture given that prices appear to be clawing their way up from multi-month lows made earlier this month,” said Tom Pawlicki, analyst at MF Global in a report today.

Crude may extend its rally in New York until futures approach long-term technical resistance at $89.84 a barrel, according to data compiled by Bloomberg. That’s the 50 percent Fibonacci retracement of the drop to $32.40 in December 2008 from a record high of $147.27 in July that year. Investors tend to buy contracts before prices reach chart-resistance levels.

Morgan Stanley forecasts lower oil prices through the first half of 2012 amid “limited inventory draws” for crude and no immediate resolution to Europe’s debt crisis, the bank said in an Oct. 16 research note.

Libya’s Arabian Gulf Oil Co. will pump crude at its full capacity of about 425,000 barrels a day by February after it resumes production at some fields and boosts output at others, Yousef Gherryo, a marketing manager at the company, said yesterday in Benghazi.

Light, Sweet Crude

Fighting in Libya reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day in August, according to Bloomberg estimates. The North African nation pumped 100,000 barrels a day last month.

Investors will be watching China’s demand for oil. Gross domestic product in the nation, the world’s second-biggest consumer of crude, increased 9.3 percent in the third quarter from a year earlier, according to the median estimate of 22 economists in a Bloomberg News survey. That would be the ninth straight quarter of expansion above 9 percent and follow a 9.5 percent gain in the previous three months in China, the second biggest crude-consuming nation behind the U.S.

--With assistance from Yee Kai Pin and Alexander Kwiatkowski in Singapore. Editors: Mike Anderson, Alexander Kwiatkowski

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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