Bloomberg News

Oil Rises as Consumer Sentiment Gains

November 09, 2012

Oil advanced as data showing U.S. consumer confidence climbed to a five-year high, helping ease concern that a political stalemate in Washington will lead to a fiscal crisis.

Futures rose 1.2 percent after the Thomson Reuters/University of Michigan preliminary index of consumer sentiment for November increased to 84.9 from 82.6 the prior month. Prices fell earlier on concern U.S. lawmakers will be unable to compromise and avoid automatic spending cuts and tax increases at the start of 2013.

“The consumer sentiment numbers were expected to improve but not be that good,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “Prior to their release, we were heading to new lows.”

Crude oil for December delivery increased 98 cents to settle at $86.07 a barrel on the New York Mercantile Exchange. Prices, which climbed 1.4 percent this week, are down 13 percent this year.

Brent oil for December settlement advanced $2.15, or 2 percent, to end the session at $109.40 a barrel on the London- based ICE Futures Europe Exchange.

Confidence increased as the labor market showed signs of improvement. A reading of 82.9 was projected in a Bloomberg survey of economists. The index averaged 64.2 during the last recession and 89 in the five years leading up to the 18-month economic slump that began in December 2007.

The Standard & Poor’s 500 Index (SPX) advanced as much as 1 percent and the Dow Jones Industrial Average climbed 0.6 percent after the consumer confidence report.

Fitch Warning

The U.S. economy will contract if Congress fails to act and allows more than $600 billion of tax increases and spending cuts to take effect next year, Fitch Ratings said. A report from the Congressional Budget Office published late yesterday reiterated that failing to avoid the fiscal cliff would lead to a recession in the first half of 2013.

“The continuation of political gridlock in Washington could lead us over a fiscal cliff and into recession,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The likeliest outcome is a stopgap measure. They will then kick a final resolution down the road, which got us into this mess in the first place.”

President Barack Obama invited the top Democratic and Republican leaders in Congress to the White House next week to begin talks on a plan to avert the plan.

“The American people voted for action,” Obama said at the White House, giving his first public remarks on the budget and deficit since winning re-election Nov. 6. He again said any solution must include spending cuts and raising revenue, including raising taxes on the wealthiest.

Currency Movement

The euro dropped against the dollar as a decline in French industrial production added to speculation Europe’s economic outlook is worsening. The common currency touched $1.269, the lowest level since Sept. 7. A weaker euro and stronger dollar reduce oil’s appeal as an investment alternative.

The Organization of Petroleum Exporting Countries cut forecasts for demand for its crude next year and said that it decreased production last month. The 12-member group will need to provide an average of 29.7 million barrels a day in 2013, 1.25 million less than it’s currently pumping, and 100,000 a day less than it forecast a month ago, the Vienna-based group said in a report today.

Supply from OPEC dropped by 0.2 percent to 30.95 million a day in October, the lowest level since December, because of declines in Nigeria, Iran and Saudi Arabia, the report showed.

Gasoline Rationing

Rationing of gasoline came to New York City and Long Island today, following New Jersey, which imposed restrictions in 12 counties on Nov. 2. Supplies in the region were disrupted by Hurricane Sandy, which made landfall in New Jersey 11 days ago.

Gasoline for December delivery rose 9.19 cents, or 3.5 percent, to settle at $2.6992 a gallon in New York.

“Gasoline supplies are tight in New York and that’s going to keep prices moving higher,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “We’re seeing supplies move around to relieve the situation but it will take time to resolve the problem.”

Electronic trading volume on the Nymex was 523,031 contracts as of 3:18 p.m. Volume totaled 576,821 contracts yesterday, 10 percent above the three-month average. Open interest was 1.61 million.

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 in New York at dstets@bloomberg.net.


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