Bloomberg News

Oil Advances for Third Day as U.S. Economy Shows Strength

March 27, 2012

Oil climbed for a third day in New York as reports showed strength in the U.S. economy and on speculation the Federal Reserve will keep stimulative monetary policies in place to bolster growth.

Crude rose 0.3 percent as property values in 20 U.S. cities dropped at a slower pace and confidence among consumers in March stayed near a one-year high. Fed Chairman Ben S. Bernanke signaled yesterday that the central bank will continue economic stimulus. Trading volume was near the lowest levels of the year.

“We’re searching for a catalyst to push us strongly one way or the other,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The good economic news has been fully factored into the price.”

Crude oil for May delivery rose 30 cents to $107.33 a barrel on the New York Mercantile Exchange, the highest settlement since March 19. Futures have gained 8.6 percent this year after increasing 25 percent in the fourth quarter of 2011.

Prices were little changed after the American Petroleum Institute reported oil supplies rose 3.6 million barrels to 351.5 million last week. The May contract was down 1 cent at $107.02 at 4:32 p.m. in electronic trading. It traded at $107.06 a barrel before the report.

Brent oil for May settlement fell 11 cents to end the session at $125.54 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate narrowed to $18.21 from $18.62 yesterday. It reached a record of $27.88 on Oct. 14.

Economic Data

The S&P/Case-Shiller index of home prices in 20 cities declined 3.8 percent from a year earlier, matching the median forecast of 32 economists surveyed by Bloomberg News, after decreasing 4.1 percent in December.

The Conference Board’s confidence index dropped to 70.2 from a revised 71.6 reading in February that was higher than initially reported, figures from the New York-based private research group showed today. The median forecast of economists surveyed by Bloomberg News called for a decrease to 70.

Oil also rose a day after Bernanke cited high levels of long-term unemployment and wages below pre-crisis peaks. The comments in a speech in Arlington, Virginia, added to expectations that the Fed will keep interest rates low and may take other measures to support the economy.

“The economy has been OK but not great,” said Kyle Cooper, director of IAF Advisors, a Houston-based consulting firm. “With the economic data coming in like this, Bernanke made it clear that he would take action. We’re going to continue to see significant monetary stimulus.”

Strategic Reserve

Futures dropped as much as 0.5 percent in intraday trading after an Energy Department official said a release of oil from the U.S. Strategic Petroleum Reserve was possible. Charles McConnell, the acting assistant secretary for fossil energy, said at a hearing in Washington that a withdrawal is “being considered.”

Energy Secretary Steven Chu has made similar comments to McConnell’s in recent weeks. President Barack Obama discussed releasing emergency oil supplies with U.K. Prime Minister David Cameron on March 14. No agreement was reached, according to Cameron and Jay Carney, the White House press secretary.

Oil in New York has traded from $102.25 to $110.55 a barrel since Feb. 17 as Western countries have imposed sanctions on Iran aimed at halting its nuclear program. The price in March has ranged from $103.78 to $110.55.

“The market is in the doldrums right now,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We’re waiting on more information on the U.S. economy and for the next Iran headlines.”

Iran Production

Iran, the second-biggest producer in the Organization of Petroleum Exporting Countries, pumped 3.45 million barrels a day last month, the lowest level since September 2002, according to data compiled by Bloomberg. Saudi Arabia is the leading producer.

An Energy Department report tomorrow will probably show that U.S. stockpiles rose to a six-month high last week, according to a Bloomberg News survey.

U.S. crude inventories increased 2.55 million barrels, or 0.7 percent, to 348.8 million in the seven days ending March 23, according to the median of 12 analyst estimates in the survey before tomorrow’s report. Supplies climbed after weather-related delays along the Gulf of Mexico subsided.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

Electronic trading volume on the Nymex was 361,841 contracts at 4:32 p.m. in New York. Volume totaled 284,980 contracts yesterday, less than half the average of the past three months and the lowest level since Dec. 27. Open interest was 1.55 million.

“Last week we moved more than a dollar each day,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Traders are leery after those quick changes, which may explain the lack of volume this week.”

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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