Crude Advance on Economic Data, Caps Biggest Weekly Gain Since February

Oil rose, capping its biggest weekly gain since February, after economic data from the U.S. and China bolstered optimism that demand is growing in the world’s two largest energy-consuming countries.

Crude advanced to the highest level in eight weeks as China’s purchasing managers’ index gained in September at the fastest pace in four months, according to a report today. U.S. consumer spending increased more than forecast in August as incomes climbed, a Commerce Department report showed.

“Where those two countries go, the world will follow on the price side,” said Roger Read, an analyst at Natixis Bleichroeder in Houston. “Expectations are that it’s no longer going to be a double-dip recession but some form of growth next year.”

Oil for November delivery climbed $1.61, or 2 percent, to settle at $81.58 a barrel on the New York Mercantile Exchange. It touched $81.64, the highest level since Aug. 5. The weekly gain of 6.7 percent is the largest since Feb. 19.

Purchases in the U.S. rose 0.4 percent for a second month, exceeding the 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News. Incomes were up 0.5 percent, the biggest advance this year.

Chinese Manufacturing

China’s purchasing managers’ index climbed to 53.8 from 51.7 in August, the logistics federation and statistics bureau said today. The median forecast from 15 economists surveyed by Bloomberg News was 52.5. Readings above 50 indicate expansion.

“The Chinese data spurs hopes of continued strong oil demand in the second-largest consuming country,” said Carsten Fritsch, a Commerzbank AG analyst in Frankfurt. China trails only the U.S. in the amount of oil it consumes.

Futures have risen 15 percent in the past year. Prices gained 11 percent in September, the biggest monthly gain since May 2009, and rose 5.7 percent in the third quarter.

Oil also increased as the dollar fell to the lowest level in more than six months against the euro, boosting the appeal of commodities as an alternative investment.

The dollar dropped 1.1 percent against the euro to $1.378 at 3:22 p.m. in New York as a report showing U.S. manufacturing expanded at the slowest pace in 10 months dampened demand for U.S. assets. The U.S. currency has lost 2.1 percent this week.

The Institute for Supply Management’s factory index fell to 54.4 in September from 56.3 a month earlier, the Tempe, Arizona- based group said today. Readings greater than 50 signal growth. Economists forecast the gauge to drop to 54.5, according to the median of 83 projections in a Bloomberg News survey.

Equities Rise

“You’ve got the dollar having the tonsils kicked out of it, equity markets moving higher and it’s the beginning of a new quarter, so new money is flowing in,” said Addison Armstrong, director of market research at Tradition Energy, a Stamford, Connecticut-based procurement adviser.

The Standard & Poor’s 500 Index rose 0.4 percent to 1,146.24 at 4:12 p.m. in New York, and the Dow Jones Industrial Average gained 0.4 percent to 10,829.68.

The S&P GSCI Spot Index of 24 raw materials rose 1.1 percent to the highest level in almost five months. Thirteen of the commodities increased, led by gasoil, gasoline and Nymex crude oil.

“Oil has been the laggard among the commodities,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “Now it’s relatively cheap compared to the metals, grains and livestock, so you are seeing increased investor interest.”

Brent crude for November settlement jumped $1.44, or 1.7 percent, to $83.75 a barrel, the highest close since May 4.

Analysts Expect Increase

Crude may rise next week on speculation that U.S. inventories will drop as the economic rebound accelerates, a Bloomberg News survey showed. Fifteen of 36 analysts, or 42 percent, forecast crude oil will increase through Oct. 8. Thirteen respondents, or 36 percent, predicted a decline, and eight estimated prices will be little changed.

“You’re going to start hearing talk now about prices putting a damper on the recovery, if there really is one,” said Michael Fitzpatrick, a broker with MF Global in New York.

Oil volume in electronic trading on the Nymex was 739,034 contracts as of 3:24 p.m. in New York. Volume totaled 787,390 contracts yesterday, 20 percent above the average of the past three months. Open interest was 1.37 million contracts, the highest level since May 19.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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