Bloomberg News

Crude Oil Surges to Biggest Monthly Gain in More Than Two Years

November 01, 2011

Oct. 31 (Bloomberg) -- Oil surged in October to the biggest monthly gain in more than two years on speculation that a recovering economy will boost energy demand and reduce supplies.

Futures advanced as government reports showed the U.S. economy grew at the fastest pace in a year in the third quarter and oil inventories reached a 20-month low in the week ended Oct. 14. Crude slipped today after Japan stepped in to foreign- exchange markets to weaken the yen against the dollar.

“The supply and demand fundamentals look quite supportive as inventories in industrialized nations have come down a decent amount,” said Katherine Spector, a commodities strategist with CIBC World Markets Corp. in New York. “You only need demand to grow incrementally to tighten the balance.”

Crude oil for December delivery declined 13 cents to settle at $93.19 a barrel on the New York Mercantile Exchange. Futures rose 18 percent this month, the biggest gain since May 2009.

Brent oil for December settlement dropped 35 cents, or 0.3 percent, to $109.56 a barrel on the London-based ICE Futures Europe exchange.

Oil stockpiles in the Organization for Economic Cooperation and Development declined 12.7 million barrels in September, according to preliminary estimates Oct. 12 from the Paris-based International Energy Agency.

U.S. gross domestic product increased 2.5 percent in the third quarter, the Commerce Department reported on Oct. 27. The growth rate was higher than the 1.3 percent gain in the prior three months. Crude stockpiles fell to 333 million barrels in the week ended Oct. 14, the lowest level since February 2010, according to the Energy Department.

Daily Drop

Crude futures dropped as much as 2.1 percent in intraday trading in New York as the dollar climbed and equities fell. A stronger dollar makes commodities priced in the U.S. currency less attractive to investors.

The Standard & Poor’s GSCI Index of 24 raw materials slid 0.7 percent to 647.96. It gained 9.6 percent in October, the biggest monthly rally this year.

The dollar strengthened against all 16 of its major peers. The yen declined as much as 4.9 percent against the U.S. currency after Japan intervened in foreign-exchange markets for the third time this year.

The Japanese government took steps to weaken the currency, and pledged to keep selling the yen, as its gains to a postwar record threatened an export-led economic recovery.

Finance Minister Jun Azumi said the move was carried out to combat “one-sided speculative moves that don’t reflect the economic fundamentals of our economy.”

Dollar Strengthens

The Dollar Index, which tracks the U.S. currency against six major peers including the euro and the yen, rose 1.9 percent to 76.5 at 3:52 p.m. in New York.

“Given the strength of the dollar and weakness in the equity markets, crude oil will struggle,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The dollar has posted strong gains against most currencies after the Japanese government took steps to curb the yen’s strength.”

U.S. stocks declined, trimming the biggest monthly advance since 1991 for the Standard & Poor’s 500 Index. The S&P 500 fell 2.5 percent to 1,253.28 at 4:02 p.m. in New York. The Dow Jones Industrial Average dropped 2.3 percent to 11,955.77.

“The dollar and the equities are the primary drivers and this situation will remain in place,” said Kyle Cooper, director of research for IAF Advisors in Houston. “People realized that all the euphoria last week has not in any way solved the problem in Europe.”

OPEC Output

Oil at $80 to $100 a barrel is “reasonable” and will continue to encourage the building of additional spare production capacity, United Arab Emirates Energy Minister Mohamed al-Hamli said today. It is too early to discuss what the Organization of Petroleum Countries is likely to do when it meets to decide oil-production policy in December, he said.

Output this month by OPEC rose to the highest level in almost three years as gains in Libya and Angola outpaced a cut by Saudi Arabia, a Bloomberg News survey showed.

Production increased 125,000 barrels, or 0.4 percent, to average 30.14 million barrels a day, the most since November 2008, according to the survey of oil companies, producers and analysts. Daily output by the 11 members with quotas, all except Iraq, climbed 200,000 barrels to 27.485 million, 2.64 million barrels above their target.

Iran’s governor to OPEC, Mohammad Ali Khatibi, said supply and demand in world oil markets is balanced and there is no need for an emergency meeting of the producer group, according to the state-run Iranian Students News Agency yesterday. OPEC plans to meet next on Dec. 14 in Vienna. Iran is the group’s second- largest producer.

Oil volume in electronic trading on the Nymex was 320,135 contracts as of 3:40 p.m. in New York. Volume totaled 528,798 contracts on Oct. 28, 24 percent below the three-month average. Open interest was 1.35 million contracts, the lowest level since December.

--With assistance from Grant Smith in London and Aki Ito in Tokyo. Editors: Margot Habiby, Bill Banker

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