Bloomberg News

Oil Rises to Three-Day High on Spain Debt, Retail Sales

April 17, 2012

Oil climbed to a two-week high in New York as Spain raised more than its maximum target at a debt auction and the International Monetary Fund bolstered its global growth forecast.

Futures gained 1.2 percent after Spain sold 3.18 billion euros of bills today, easing concern the European credit crisis will spread. The IMF raised its outlook for 2012 and 2013. The price difference between oil in New York and London narrowed after the reversal of the Seaway pipeline was moved up and talks on Iran’s nuclear program yielded an agreement to reconvene.

“We’re rebounding in large part because of the better- than-expected bond auction in Europe,” said Phil Flynn, vice president of research at futures brokerage PFGBest in Chicago. “The spread is coming in a great deal because there’s less concern about a cutoff of Iranian supply and the Seaway reversal was moved up a couple days.”

Crude oil for May delivery advanced $1.27 to $104.20 a barrel on the New York Mercantile Exchange, the highest settlement since April 2. Crude is up 5.4 percent this year.

Prices were little changed after the American Petroleum Institute said U.S. oil supplies rose 3.41 million barrels to 369.3 million last week. Oil gained $1.26, or 1.2 percent, to $104.19 a barrel in electronic trading at 4:35 p.m.

Brent oil for June settlement rose 10 cents to end the session at $118.78 a barrel on the London-based ICE Futures Europe exchange.

The European benchmark contract’s premium to New York- traded West Texas Intermediate for the same month narrowed to $14.14 based on settlement prices, the lowest level since Feb. 1.

Brent-WTI Spread

“The Brent-WTI spread is really being worked right now,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We’re seeing a spread play more than anything else.”

Spain sold 12-month and 18-month bills a day after yields on its 10-year bonds reached the highest level this year. Oil prices have shifted for more than two years on the latest developments in the European debt crisis and the projected impact it would have on energy demand. The crisis that began in Greece has spread to Ireland, Portugal, Italy and Spain.

The world economy will expand 3.5 percent this year and 4.1 percent in 2013, the Washington-based IMF said today in its World Economic Outlook, raising forecasts made in January from 3.3 percent for 2012 and 4.0 percent for next year. The U.S. will grow 2.1 percent this year and 2.4 percent in 2013, up from 1.8 percent and 2.2 percent in the lender’s January projections.

Advanced economies, which include the U.S., the euro area, Japan, the U.K. and Canada, will grow 1.4 percent this year and 2 percent in 2013, the IMF said. That’s up from 1.2 percent and 1.9 percent in the January forecasts.

Macroeconomic Growth

“The single most important driver of crude-oil demand is macroeconomic growth,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The IMF report is indicative of more growth in much of the world, which is very bullish for commodities.”

The Standard & Poor’s GSCI Index of 24 commodities increased 0.5 percent, led by cocoa, nickel and oil. The Standard & Poor’s 500 Index advanced 1.5 percent.

Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD:US) said they plan to switch the Seaway pipeline flow on about May 17 to carry crude from Cushing, Oklahoma, to the U.S. Gulf Coast, according to a filing with the Federal Energy Regulatory Commission. That’s earlier than a previous June 1 start date.

The move is forecast to cut a glut at Cushing, where the WTI contract traded on the Nymex is delivered.

“The reversal of the Seaway pipeline will make WTI barrels more valuable,” Armstrong said.

Iran Talks

The first international talks in 15 months on Iran’s nuclear program, held April 14 in Istanbul, were called “constructive” by both Catherine Ashton, the European Union’s foreign policy chief, and Iran’s lead negotiator, Saeed Jalili.

The United Nations’ five permanent Security Council members plus Germany will meet Iranian delegates in Baghdad on May 23, Ashton said April 15.

President Barack Obama urged Congress today to increase federal supervision of oil markets, including bigger penalties for market manipulation and greater power for regulators to boost the amount of money traders must put up to back their energy bets.

Obama Plan

Obama asked Congress to fund a sixfold increase for surveillance and enforcement staff at the Commodity Futures Trading Commission to put “more cops on the beat” overseeing oil markets.

He wants the CFTC to be able to raise margin requirements for traders’ oil positions and also asked lawmakers to raise civil and criminal penalties for businesses that are guilty of market manipulation to $10 million from $1 million. The plan would cost $52 million.

An Energy Department report tomorrow will probably show that U.S. crude oil stockpiles climbed 1.8 million barrels to a 10-month high of 367 million last week, according to the median of 10 analyst responses in a Bloomberg News survey.

Electronic trading volume on the Nymex was 615,035 contracts as of 4:36 p.m. in New York. Volume totaled 687,731 contracts yesterday, 6.8 percent above the three-month average. Open interest was 1.59 million, an 11-month high.

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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