Bloomberg News

Oil Rises First Time in Three Days on European Deal Optimism

October 21, 2011

Oct. 21 (Bloomberg) -- Crude oil rose for the first time in three days on hopes that European leaders will reach a deal to contain the region’s debt crisis.

Futures gained 1.6 percent as European finance ministers met in Brussels today to lay the groundwork for an Oct. 23 gathering of government leaders on a solution to the debt crisis. Oil also rose after McDonald’s Corp. and Honeywell International Inc. reported profits that beat analyst estimates.

“There is some positive sentiment that Europe is going to be able to accomplish something this weekend,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Earnings reports suggested that the U.S. economy doesn’t seem to be slowing down considerably.”

Crude for December delivery rose $1.33 to settle at $87.40 a barrel on the New York Mercantile Exchange. Oil gained 0.7 percent this week, the third weekly increase in a row.

Brent oil for December settlement fell 25 cents, or 0.2 percent, to $109.51 a barrel on the London-based ICE Futures Europe exchange. The North Sea crude’s premium to the U.S. benchmark narrowed to $22.11 amid speculation that Muammar Qaddafi’s death will increase Libyan output. The spread reached a record of $27.88 on Oct. 14.

European finance ministers started a six-day negotiation over how to save Greece from default, shield banks from the fallout and build more powerful defenses against the debt crisis. As much as 940 billion euros ($1.3 trillion) might be deployed, two people familiar with the discussions said yesterday.

A further summit was scheduled for Oct. 26 after Germany and France said the European Union needs more time to seal a “global and ambitious” accord.

U.S. Equities Gain

U.S. stocks rose after McDonald’s said earnings rose 8.6 percent and Honeywell raised its full-year forecast. The Standard & Poor’s 500 Index advanced 1.2 percent to 1,229.85, and Dow Jones Industrial Average rose 1.7 percent to 11,732.47. The S&P’s GSCI Index of 24 raw materials increased 0.8 percent to 629.41.

“We are still correlating highly with the equity market,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consulting company. “It’s another injection of risk appetite across the financial and commodity space.”

Demand Increase

U.S. fuel demand rose 2.5 percent in September as growth in manufacturing bolstered distillate fuel consumption, according to the American Petroleum Institute.

Total deliveries of petroleum products, a measure of demand, climbed to 19.9 million barrels a day last month from 19.4 million a year earlier, the industry-funded group said today in a report. Total demand for distillate fuel, a category that includes diesel and heating oil, rose 9.3 percent from a year earlier to 4.25 million barrels a day, a record high for September.

Consumption of ultra-low sulfur diesel, the type used on highways, climbed 11 percent to 3.78 million barrels a day. Demand for gasoline gained 0.3 percent to 9.14 million.

“The fundamentals are far tighter than they were in 2008,” said Amrita Sen, an oil analyst at Barclays Plc in London. “The current geopolitical context creates significant tail risks in a world with such limited spare capacity.”

Qaddafi’s Death

Muammar Qaddafi’s death isn’t likely to expedite the return of Libya’s oil output or lure back foreign companies as quickly as the interim government hopes, according to analysts Daniel Yergin at IHS-CERA and Edward Morse at Citigroup Global Markets Inc.

Oil workers and foreign companies fled Libya this year amid a rebellion that erupted in February against Qaddafi’s 42-year rule. He was deposed earlier this year and died yesterday during fighting in his hometown of Sirte.

The rebellion caused oil output from Libya, holder of Africa’s largest crude reserves, to drop 97 percent to 45,000 barrels a day by August, according to Bloomberg News estimates. Production rebounded to 100,000 barrels a day last month.

U.S. crude oil inventories fell 4.73 million barrels to 332.9 million in the week ended Oct. 14, the lowest level since February 2010, the Energy Department reported Oct. 19.

Gasoline supplies declined 3.32 million barrels to 206.3 million, the lowest level since May, the report showed. Inventories of distillate fuel, a category that includes heating oil and diesel, decreased 4.27 million barrels to 149.7 million, the biggest drop since November.

Oil may fall next week, according to a Bloomberg News survey. Twenty of 40 analysts, or 50 percent, forecast oil will decline through Oct. 28. Eighteen predicted a gain, and two said there will be little change. Last week, 68 percent of the surveyed analysts projected a drop.

Oil volume in electronic trading on the Nymex was 431,143 contracts as of 2:38 p.m. in New York. Volume totaled 629,779 contracts yesterday, 6.1 percent below the three-month average. Open interest was 1.40 million contracts.

--With assistance from Rachel Graham in London and Margot Habiby in Dallas. Editors: Richard Stubbe, Dan Stets

To contact the reporters on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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