Bloomberg News

Oil Rises a Fifth Day as Economic Growth Counters Budget

December 20, 2012

Crude in New York rose for a fifth day, the longest stretch of gains since September, as better- than-projected economic growth in the U.S. countered concern that American budget negotiations will fail.

Futures reached a two-month high after the Commerce Department U.S. gross domestic product grew at a 3.1 percent annual rate in the third quarter, greater than the highest forecast in a Bloomberg survey. Oil fell as much as 0.8 percent earlier on speculation that efforts to avert the so-called fiscal cliff of tax gains and spending cuts are deteriorating.

“The market is getting support from the improving economic picture,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There have been a number of signs pointing to stronger growth.”

Crude oil for February delivery rose 15 cents to $90.13 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 18. Futures, which have gained 3.9 percent this week, are down 8.8 percent this year.

Brent oil for February settlement fell 16 cents to end the session at $110.20 a barrel on the London-based ICE Futures Europe exchange. The front-month European benchmark settled at $20.07 premium to the corresponding West Texas Intermediate contract traded in New York. The spread was $20.38 yesterday.

The Commerce Department in Washington previously estimated that U.S. gross domestic product increased 2.7 percent in the third quarter. The median estimate of economists called for a 2.8 percent advance.

Philadelphia Manufacturing

Other reports showed manufacturing in the Philadelphia region unexpectedly expanded to an eight-month high and nationwide sales of previously owned homes rose more than forecast in November to reach a three-year high.

The index of U.S. leading indicators fell in November, pointing to a slowdown in the economy early next year as companies curb investment. The Conference Board’s gauge of the outlook for the next three to six months dropped 0.2 percent after a revised 0.3 percent gain in October that was larger than initially reported, the New York-based group said today.

The U.S. accounted for 21 percent of the world’s oil consumption last year, according to BP Plc (BP/)’s Statistical Review of World Energy.

House Speaker John Boehner accused President Barack Obama of being unwilling to stand up to fellow Democrats in the fight over how to avert spending cuts and tax increases scheduled to begin in January.

Nearing Deadline

“It looked like they were on the verge of an agreement to avoid the fiscal cliff, but now that’s not looking that sure,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We had some positive GDP numbers today but the economy won’t continue to grow in the new year if we go over the fiscal cliff.”

Officials from the Obama administration told eight industry representatives at the White House that plans to vote on Boehner’s alternative proposal on taxes risk pushing the government past the deadline for spending cuts and tax increases to start, a person familiar with the meeting said.

Republican leaders gave themselves most of the day to line up votes for Boehner’s tax measure by scheduling the roll call on final passage after 7:30 p.m. Washington time, according to the House Republican whip’s notice.

White House spokesman Jay Carney called Boehner’s push for his plan a “multiday exercise in futility” that wouldn’t pass the Senate and would be vetoed by the president if it did.

‘Some Hope’

“There’s still some hope that they will come to an agreement, because otherwise prices would be much lower,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “There’s a sense that the political posturing isn’t quite over.”

U.S. crude oil inventories decreased last week as refineries ramped up operating rates, according to data released yesterday by the Energy Department. Crude stockpiles fell 964,000 barrels to 371.6 million, the lowest level since Oct. 12. Refineries operated at a 91.5 percent rate, the highest since Aug. 10.

“It looks like there is some follow-through from yesterday’s report,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Crude demand from refiners was extremely strong.”

Electronic trading volume on the Nymex was 330,672 contracts as of 3:11 p.m. Volume totaled 507,852 contracts yesterday, 0.6 percent lower than the three-month average. Open interest was 1.48 million, the lowest level since Nov. 19.

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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