Bloomberg News

Oil Rises to 12-Week High as Declining Supplies Spur Bull Market

October 25, 2011

Oct. 25 (Bloomberg) -- Oil rose to the highest price in 12 weeks in New York on signs of declining U.S. supplies and speculation European leaders will agree on a fund to contain a debt crisis threatening the region’s economy.

Futures erased this year’s loss, climbing as much as 3.7 percent. Oil has gained more than 20 percent in the past three weeks, putting it in a so-called bull market. Stockpiles at Cushing, Oklahoma, the delivery point for New York crude, fell last week, according to a satellite survey. A report today may show U.S. consumer confidence increased a second month and European leaders will meet tomorrow to decide on a blueprint to tame the region’s debt problems, while Hurricane Rina headed for Mexican oil platforms.

“There are some empty storage tanks in Cushing,” said Olivier Jakob, managing director of Zug, Switzerland-based consultants Petromatrix GmbH. “So we’re going through this glut, and currently stocks are pretty low.”

Crude for December delivery on the New York Mercantile Exchange gained as much as $3.38 to $94.65 a barrel, the highest since Aug. 2. It was at $93.77 at 1:29 p.m. London time. Futures had rallied 21 percent since Oct. 4 as of yesterday’s close. A 20 percent gain meets the common definition of a bull market.

Market in Backwardation

December futures were at a 33-cent premium to January. The front-month contract yesterday settled higher than the next month for the first time since Nov. 20, 2008. This so-called backwardation typically signals a decline in supply or an increase in demand in the near term.

Brent oil for December settlement on the London-based ICE Futures Europe exchange climbed as much as 70 cents, or 0.6 percent, to $112.15 a barrel. The European benchmark crude was at a premium of $17.81 to New York contracts, down from a close of $20.18 yesterday, the lowest since July 28.

Oil prices in New York may surge to $105 a barrel following the shift into backwardation, Bank of America Corp. said in a report. Brent crude may rally toward $115, it said.

Crude inventories at Cushing dropped 760,000 barrels to 28.1 million, according to satellite images taken by Longmont, Colorado-based DigitalGlobe Inc. Oil supplies nationwide probably climbed 1.75 million barrels, based on the median estimate of nine analysts surveyed by Bloomberg News before an Energy Department report tomorrow. Supplies in the prior week fell to the lowest since February 2010. The industry-funded American Petroleum Institute will report its own data today.

Overhang Depleted

“The previous substantial inventory overhang has now been fully depleted,” Commerzbank AG analysts led by Eugen Weinberg in Frankfurt said in a report today. “On the supply front, further hardship appears to be on the way in the form of Hurricane Rina, which is set to reach the Gulf of Mexico at the end of the week.”

Rina, the sixth major system of the Atlantic storm season, strengthened to a Category 2 storm on the five-step Saffir- Simpson scale as it churned over Caribbean waters toward resorts on Mexico’s Yucatan Peninsula, the National Hurricane Center said. Kinetic Analysis Corp. estimated the storm may shut in 6.69 million barrels of Petroleos Mexicanos’s crude output. The company is Latin America’s largest oil producer.

The Conference Board’s index of U.S. consumer confidence rose in October to 46 percent, from 45.4 percent, according to the medium estimate of 75 economists polled by Bloomberg News before the New York-based group’s report.

European leaders return to Brussels tomorrow for their second summit in four days as they seek to agree on a plan to resolve the debt crisis. The European Union accounted for 16 percent of the global oil demand consumption last year, according to BP Plc’s annual Statistical review of World Energy.

--With assistance from Yee Kai Pin and Christian Schmollinger in Singapore. Editors: John Buckley, Todd White

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

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


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