West Texas Intermediate crude capped the biggest weekly advance since July as the U.S. jobless rate dropped to a five-year low, bolstering the outlook for economic growth in the world’s biggest fuel-consuming nation.
Futures climbed 0.3 percent today, bringing the weekly gain to 5.3 percent. The Labor Department reported today that the unemployment rate fell to 7 percent in November. Consumer confidence rose the most in five months. Government data on Dec. 4 showed that U.S. crude supplies fell for the first time in 11 weeks as fuel demand increased.
“These were spectacular jobs numbers and will ultimately be supportive for energy prices,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We’ve already seen demand pick up, and this is a signal that it will be stronger going ahead.”
WTI for January delivery rose 27 cents to $97.65 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 29. The volume of all futures traded was 10 percent below the 100-day average at 3:20 p.m.
Brent for January settlement increased 63 cents, or 0.6 percent, to end the session at $111.61 a barrel on the London-based ICE Futures Europe exchange. Volume was 26 percent lower than average. Prices advanced 1.8 percent this week.
The European benchmark crude closed at a $13.96 premium to WTI. The spread was $13.60 yesterday, the tightest based on closing prices since Nov. 19.
Payrolls rose 203,000 last month after a revised 200,000 advance in October. The median forecast of 89 economists surveyed by Bloomberg called for a 185,000 climb.
“When people are working, they drive more,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The miles driven will increase, which will be supportive for gasoline demand.”
The Thomson Reuters/University of Michigan preliminary December consumer sentiment index rose to 82.5, the strongest level since July, from 75.1 in November.
U.S. gross domestic product grew in the third quarter at a 3.6 percent annualized rate, the fastest pace since the first three months of 2012, the Labor Department reported yesterday. The U.S. will account for about 21 percent of global demand this year, according to the Paris-based International Energy Agency.
Futures fell earlier on concern that improving economic data will spur the Federal Reserve to curb its stimulus program. In a Bloomberg Global Poll Nov. 19, four of five investors said they expected the Fed to put off a decision to start cutting its $85 billion-a-month in bond buying until March 2014 or later. The Federal Open Market Committee meets Dec. 17-18.
“We are in a perverse situation where good economic news raises concerns about Fed policy,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “You never know if the market will rise or fall on a positive headline because of fears that the Fed will take away the punchbowl.”
U.S. crude supplies fell 5.59 million barrels to 385.8 million last week, the Energy Information Administration, the Energy Department’s statistical arm, said Dec. 4. Refineries operated at 92.4 percent of capacity, the most since September. Utilization rates usually pick up in December after maintenance is performed during the lull in fuel demand between the summer driving season and the winter heating period.
Fuel demand rose 1.7 percent to 20 million barrels a day in the seven days ended Nov. 29, EIA figures showed. Consumption was 8.9 percent higher than during the same week a year earlier.
“It looks like WTI reached a real turning point this week, and the fundamentals support the move,” said Michael Wittner, head of oil market research at Societe Generale SA in New York. “There was a big jump in refinery activity to summer levels. Product demand at 20 million barrels a day is ripping strong and crude demand is at a winter peak.”
WTI also gained this week on TransCanada Corp. (TRP:US) plans to start part of its Keystone XL pipeline to the Gulf Coast from Cushing, Oklahoma. The Calgary-based company estimates it will begin taking receipts and delivering oil in mid-to-late January, a bulletin shows. The link ending at Port Arthur, Texas, will have a capacity of 700,000 barrels a day.
The Seaway pipeline owned by Enterprise Products Partners LP (EPD:US) and Enbridge Inc. (ENB) switched direction in May 2012 and is taking as much as 400,000 barrels a day to Houston from Cushing.
“We’re still digesting the TransCanada news,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “We had a similar reaction to the Seaway announcement and this is actually bigger. The headlines seemed to catch the market a bit off guard.”
Implied volatility for at-the-money WTI options expiring in January was 15.6 percent, down from 16.3 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 452,624 contracts as of 3:20 p.m. It totaled 531,988 contracts yesterday, 6.7 percent below the three-month average. Open interest was 1.66 million contracts.
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