Oil Tops $80 a Barrel for First Time Since May as Equities Rise
Oil jumped as much as 3.2 percent
Jeff Kowalsky/Bloomberg
Cindy Lustig pumps gasoline into her Mini Cooper.
Cindy Lustig pumps gasoline into her Mini Cooper. Photographer: Jeff Kowalsky/Bloomberg
Crude oil surged above $81 a barrel for the first time since May as a rally in global equity markets increased speculation the economy is strengthening.
Oil jumped 3 percent after equities climbed on better-than- expected earnings and as the Institute for Supply Management’s U.S. manufacturing gauge fell less than forecast. The dollar dropped against the euro, boosting the investment appeal of commodities.
“Oil is following the S&P 500,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “Fundamentals don’t seem to matter. You don’t need to be an oil analyst anymore. You just need to be a stock market analyst.”
Crude oil for September delivery rose $2.39 to $81.34 a barrel on the New York Mercantile Exchange, the highest settlement since May 4. Futures climbed 4.4 percent in July, the biggest monthly gain since March. Prices are up 17 percent from a year ago.
The Standard & Poor’s 500 Index increased 2.2 percent to 1,125.68 as of 3:02 p.m. in New York following positive earnings reports from companies such as Humana Inc. and Oshkosh Corp. It jumped 6.9 percent in July, the biggest monthly advance since July 2009. The Dow Jones Industrial Average strengthened 210.18, or 2 percent, to 10,676.12.
The MSCI World Index, a gauge of equities in 24 developed nations, rose 2.4 percent to 1,151.55, the highest level since May 13. European stocks climbed to a three-month high on gains among banks and basic-resource producers.
“Equities did well in July and profits are generally OK, so people are feeling bullish across the board,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Manufacturing Index
The ISM’s manufacturing gauge fell to 55.5 in July from 56.2 a month earlier, the Tempe, Arizona-based group said. Economists had forecast the measure would drop to 54.5, according to the median of 74 projections in a Bloomberg News survey. Estimates ranged from 52.5 to 56. A reading greater than 50 points to expansion.
The dollar weakened by 0.9 percent to $1.3172 per euro from $1.3052 on July 30 in New York.
The Reuters/Jefferies CRB Index of 19 commodities advanced 0.9 percent to 276.85, the strongest level since May 3. Thirteen of the commodities increased, led by wheat, nickel, heating oil, crude and gasoline.
Chinese Manufacturing
Oil also advanced on speculation that China’s government will reverse policies aimed at slowing growth in the world’s largest energy-consuming country. Indexes of Chinese manufacturing dropped to the lowest level in more than a year, two reports showed today.
A purchasing managers’ index, released today by HSBC Holdings Plc and Markit Economics, slid to 49.4 from 50.4 in June. A separate, government-backed PMI fell to 51.2 from 52.1, the Federation of Logistics and Purchasing reported yesterday. Fifty is the dividing line between expansion and contraction.
The U.S. has plans for “military options” it can use to stop Iran, the second-largest oil producer in OPEC, from developing nuclear weapons, the chairman of the Joint Chiefs of Staff said yesterday on NBC’s “Meet the Press.”
“The military options have been on the table and remain on the table,” Admiral Michael Mullen said in an interview on the program. “I hope we don’t get into that, but it’s an important option and it’s one that’s well understood.”
Iran pumped 3.73 million barrels a day of oil in July, 13 percent of OPEC’s total output last month, according to Bloomberg estimates. Saudi Arabia is the largest producer in the Organization of Petroleum Exporting Countries, which provides about 40 percent of the world’s oil.
Brent Oil
Brent crude for September settlement gained $2.64, or 3.4 percent, to $80.82 a barrel on the London-based ICE Futures Europe exchange.
“The question is whether oil is having a false break, as fundamentals are not yet sufficiently robust to sustain prices in the $80 area,” said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London.
U.S. oil supplies probably fell 1.5 million barrels in the seven days ended July 30 from 360.8 million a week earlier, according to the median estimate of 11 analysts in a Bloomberg News survey. Inventories dropped as imports decreased and refineries cut operating rates, the survey showed. Eight respondents forecast a decline and three said there was a gain.
Oil volume in electronic trading on the Nymex was 503,717 contracts as of 3:02 p.m. in New York. Volume totaled 449,568 contracts July 30, 35 percent below the average of the past three months. Open interest was 1.22 million contracts, the lowest level since July 20.
To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.
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