Oil Trades Near 11-Week High; Goldman Says Crude Too Cheap
Oil traded near an 11-week high in New York as equities rallied around the world and Goldman Sachs Group Inc. said crude prices are too cheap.
Oil was at about $79 a barrel before a government report due tomorrow that may show U.S. fuel supplies increased last week. Goldman Sachs said futures prices are “significantly” below the level warranted by “fundamentals,” offering buying opportunities for this year and next.
“We expect an average of $92 next year, so on a longer- term horizon prices are too cheap, but not far too cheap,” said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich AG in Vienna. “Crude faces some resistance around $80 as although fundamentals are slowly improving they’re not yet strong enough.”
Crude for September delivery was at $79.28 a barrel, up 30 cents, in electronic trading on the New York Mercantile Exchange at 1:23 p.m. London time. Brent crude for September settlement traded at $77.82 a barrel, up 32 cents, on London’s ICE Futures Europe exchange. Futures rose as high as $79.60 a barrel on July 23, the highest intraday price since May 6.
European stocks rose for a sixth day as UBS AG and Deutsche Bank AG reported earnings that beat estimates and the Basel Committee on Banking Supervision softened some of its proposed capital and liquidity rules. The Stoxx Europe 600 Index gained 0.6 percent to 258.65.
Goldman Sachs said in a report yesterday that the balance between supply and demand will continue to tighten in the second half of this year as global economic growth boosts demand, returning inventories to “more normal” levels.
The U.S. Energy Department will likely report that supplies of gasoline and distillate fuels such as diesel rose last week, according to a Bloomberg News survey of analysts.
Gasoline inventories probably climbed 300,000 barrels last week, based on the median estimate from 11 analysts polled by Bloomberg News before the Energy Department report tomorrow. Stockpiles of distillate fuel, including heating oil and diesel, are expected to have increased by 2 million barrels.
Crude stockpiles probably fell 1.75 million barrels last week, according to the survey.
“We’re still seeing builds in the gasoline inventories which suggest that demand is increasing year-on-year but not as much as expected,” said Serene Lim, a commodity strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “So the positive news counterbalanced by the negative has given us a really range-bound market.”
Oil settled unchanged at $78.98 a barrel yesterday after the Commerce Department said home purchases climbed 24 percent in June to an annual pace of 330,000, bolstering speculation the economic recovery would be sustained. It was the first day since September that oil closed unchanged. Futures have gained 15 percent in the past year.
U.S. fuel demand hasn’t returned to the same levels as before the economic crisis of 2008. Gasoline delivered by refiners, a four-week average basis, reached a peak of 9.7 million barrels a day in the week of July 27, 2007. Supplies topped out at 9.5 million in August 2008.
For the week of July 16, the amount of the motor fuel delivered was at 9.4 million barrels a day.
Swings in oil prices have declined to their lowest level since May as traders are more cautious of the market direction, said ANZ’s Lim.
Crude’s 30-day historical volatility, a measure of how much oil has fluctuated around its average price, has dropped to 26.8 percent today, according to data compiled by Bloomberg. That’s the lowest since May 3 when it was at 23.5 percent.
“There are very contradicting economic numbers,” said Lim. “Investors have become so short term that there is some holdback in investing in risky assets. Positive news today is gone tomorrow so there is no compelling reason for a convincing direction on oil prices.”