Bloomberg News

Oil Rises to Two-Week High After Central Banks Boost Liquidity

November 30, 2011

Nov. 30 (Bloomberg) -- Oil rose to a two-week high in New York after the Federal Reserve and five other central banks made additional funds available to ease strains from Europe’s debt crisis and as U.S. companies added more workers than projected.

Futures climbed above $100 a barrel as the central banks of the U.S., the euro region, Canada, the U.K., Japan and Switzerland cut the cost of emergency funding for European banks. Businesses added 206,000 jobs this month, the most this year, ADP Employer Services said today.

“The announcement of a coordinated intervention to shore up European banks sent the market higher,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “The dark clouds over Europe have been keeping a lid on oil prices, so anything that helps calm the situation there is good for this market.”

Crude oil for January delivery rose 57 cents, or 0.6 percent, to $100.36 a barrel on the New York Mercantile Exchange. It was the highest settlement since Nov. 16. Prices gained 7.7 percent in November, the second monthly advance, and are up 9.8 percent this year.

Brent oil for January settlement dropped 30 cents, or 0.3 percent, to end the session at $110.52 a barrel on the London- based ICE Futures Europe exchange. The European benchmark climbed 0.9 percent in November.

Goldman Sachs Group Inc. recommended today that traders buy July 2012 Brent crude futures in anticipation of a rally to $120 a barrel. It was one of the bank’s top six trades for 2012 published in its “Global Economics Weekly” report. Goldman Sachs advised exiting the trade if the contract falls below $100. July Brent settled at $107.82 a barrel.

Coordinated Action

The central banks reduced the cost of providing dollar funding via swap arrangements. The move is aimed at easing strains in markets and boosting their capacity to support the global financial system, according to a Fed statement from Washington.

“The coordinated central bank action has increased the willingness of investors to go long equities and commodities,” said David McAlvany, chief executive officer of McAlvany Financial Group in Durango, Colorado. “We’re trading on the increase in liquidity, not the fundamentals of the oil market.”

ADP, based in Roseland, New Jersey, was projected to report an advance of 130,000 jobs, according to the median of responses from economists surveyed by Bloomberg News.

The Institute for Supply Management-Chicago Inc. said today its business barometer increased to 62.6 in November from 58.4 the prior month. Economists projected a gain to 58.5, according to the median of 56 estimates in a Bloomberg News survey.

“Anything that points to a stronger economy is good for oil demand,” Bentz said.

Chinese Cut

China will cut the reserve requirement ratio for banks by 0.5 percentage point from Dec. 5, the central bank said on its website today. The move may add 350 billion yuan ($55 billion) to the financial system, according to UBS AG.

The U.S. and China were responsible for 32 percent of global oil consumption in 2010, according to BP Plc’s Statistical Review of World Energy released on June 8. The 17 countries using the euro accounted for about 12 percent of world demand last year, BP figures show.

“There’s been a lot of bullish news today,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in New York. “We started the day with the reduction in Chinese reserve requirements, that was followed the announcement from the central banks and the ADP jobs numbers. These headlines were enough to fuel today’s rally.”

U.K. Foreign Secretary William Hague ordered the closing of the Iranian Embassy in London following the storming of the British Embassy in Tehran, saying the attack happened with the consent of Iran’s government. Iran is OPEC’s second-largest oil producer after Saudi Arabia.

U.S. Supplies

Futures briefly pared gains after the Energy Department reported U.S. oil supplies rose 3.93 million barrels to 334.7 million in the week ended Nov. 25. Inventories were forecast to rise 50,000 barrels, according to the median of 12 analyst estimates in a Bloomberg News survey.

Supplies of distillate fuel, a category that includes heating oil and diesel, surged 5.53 million barrels to 138.5 million, the biggest increase since January 2009, the report showed. Analysts projected a 1.25 million-barrel decline.

“The inventory numbers are being overwhelmed by the global macroeconomic picture,” McAlvany said. “There are times when inventories are very important. This isn’t one of them.”

OPEC Production

Price rises were also limited by increasing oil production by members of the Organization of Petroleum Exporting Countries. Output increased 390,000 barrels, or 1.3 percent, to an average 30.355 million barrels a day in November, the most in three years, according to a Bloomberg News survey.

Libyan output rose 155,000 barrels to 500,000 a day this month, the highest level since February when the uprising that toppled Muammar Qaddafi began, the survey showed.

Oil volume in electronic trading on the Nymex was 539,908 contracts as of 3:01 p.m. in New York. Volume totaled 611,677 contracts yesterday, 8 percent below the three-month average. Open interest was 1.3 million contracts.

--With assistance from Lananh Nguyen in London. Editors: Margot Habiby, Dan Stets

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

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


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