Oil rose for the first time in four days as the U.S. economy expanded more than previously estimated last quarter and on optimism that President Barack Obama will reach an agreement with Congress over a new budget.
Prices advanced 1.8 percent. Gross domestic product grew at a 2.7 percent annual rate in the third quarter, up from a prior estimate of 2 percent, figures from the Commerce Department showed. House Speaker John Boehner said he remains “hopeful” about talks to avert more than $600 billion in spending cuts and tax increases, known collectively as the fiscal cliff.
“You have the optimism over the fiscal cliff and you have the GDP revision,” said Jacob Correll, a Louisville, Kentucky- based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “It looks like there is light at the end of the tunnel. The enthusiasm itself can lift the prospect for oil.”
Crude for January delivery climbed $1.58 to settle at $88.07 a barrel on the New York Mercantile Exchange. Prices are up 2.1 percent this month.
Brent for January settlement rose $1.25, or 1.1 percent, to end the session at $110.76 a barrel on the London-based ICE Futures Europe exchange.
The U.S. economy expanded as a narrower trade deficit and gains in inventory investments overshadowed a smaller increase in consumer spending. The median forecast of 82 economists surveyed by Bloomberg called for 2.8 percent growth in third- quarter GDP, the value of all goods and services produced. The economy grew 1.3 percent in the second quarter.
“The revised GDP number is better than the earlier estimate and it’s helpful for the market,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “There is optimism that the budget issues can be resolved, and it’s giving oil a boost.”
Oil also rose after reports showed fewer Americans filed first-time claims for unemployment insurance payments last week and Americans signed more contracts in October to purchase previously owned homes.
“There is at least a short-term sense of optimism for the economy,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “Stronger economic growth typically drives oil prices up.”
Applications for jobless benefits decreased by 23,000 to 393,000 in the week ended Nov. 24, according to the Labor Department.
The index of pending home resales climbed 5.2 percent in October, exceeding the highest estimate in a Bloomberg survey of economists, the National Association of Realtors said.
“Some of the positive economic sentiments are boosting the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The GDP revision is positive. The market is still headline-driven.”
The U.S., the world’s biggest oil consumer, used 18.8 million barrels a day in 2011, or 21 percent of the global total, according to BP Plc (BP/)’s Statistical Review of World Energy.
Obama and Boehner said yesterday that they were eager to reach a compromise before the end of the year, without publicly offering concessions. Republicans and Democrats disagree about how to reduce future deficits and how quickly to do so, and those divides have stalled negotiations.
Prices pared early gains after Boehner said at a press conference in Washington that there has been no substantial progress in the discussions in the past few weeks. His remarks followed a meeting today with Treasury Secretary Timothy Geithner and a telephone conversation with Obama last night.
Obama, a Democrat, wants to lean more heavily on tax increases for top earners and less on structural changes to Medicare and Medicaid benefits. Boehner, a Republican, has expressed openness to higher revenue if accompanied by an overhaul of the tax code and significant reductions in future spending on entitlement programs.
“These guys will come to an agreement by Dec. 31 and the fiscal cliff will be avoided,” Williams said. “It’s just the nature of politics.”
Three out of four global investors expect a short-term agreement to avert the budget crisis. Only 6 percent of them anticipate a political impasse that would send the U.S. economy over the fiscal cliff and into a recession, according to the Bloomberg Global Poll conducted on Nov. 27. The automatic spending cuts and tax increases are set to start Jan. 1.
The Bloomberg poll also showed two-thirds of the investors described the global economy as either stable or improving. That’s the most since May 2011 and up from just over half in September.
Electronic trading volume on the Nymex was 493,221 contracts as of 3:42 p.m. Volume totaled 451,008 contracts yesterday, 14 percent lower than the three-month average. Open interest was 1.53 million.
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