Oil Rises a Second Day on U.S. Stimulus Speculation, Chinese Manufacturing

Oil rose for a second day to trade near a two-week high on speculation the Federal Reserve will take steps to stimulate the U.S. economy and on accelerating growth in China, the world’s largest energy consumer.

Crude climbed above $83 a barrel before a Fed meeting where policy makers may announce a plan to buy at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News. Manufacturing in China and the U.S. increased in October, data yesterday showed. Consuming countries are happy with oil between $70 and $90 a barrel, said Ali al-Naimi, Saudi Arabia’s oil minister.

“Market participants want to see the result of the Fed meeting,” said Ken Hasegawa, a commodity derivative sales manager at brokers Newedge in Tokyo. “For the rest of the year, the market should be sustained around this level. Like the Saudi minister said, that’s a pretty happy price for everyone.”

Crude for December delivery rose as much as 52 cents, or 0.6 percent, to $83.47 a barrel in electronic trading on the New York Mercantile Exchange. It was at $83.42 at 3:55 p.m. Singapore time. Yesterday, the contract rallied to $83.86, the highest intra-day price since Oct. 14. Futures have gained 5.1 percent in 2010.

The Fed, meeting in Washington today and tomorrow, is expected to restart a program of securities purchases to spur growth, reduce unemployment and increase inflation, said 53 of 56 economists surveyed by Bloomberg News.

Economic Revival

Oil has advanced this year in the face of rising inventories as investors bet demand for fuel will increase on a global economic revival.

Manufacturing in the U.S. expanded at the fastest pace in five months in October, the Institute for Supply Management’s U.S. factory index showed yesterday, pointing to renewed strength in the industry that led the country out of recession. Separately, China’s Federation of Logistics and Purchasing said the country’s purchasing managers’ index climbed in October to a six-month high.

Brent crude for December settlement rose as much as 61 cents, or 0.7 percent, to $85.23 a barrel on the London-based ICE Futures Europe exchange. Yesterday, the contract added $1.47, or 1.8 percent, to settle at $84.62.

Oil Supplies

U.S. crude inventories probably increased 1.7 million last week, based on the median estimate from 12 analysts surveyed by Bloomberg News before an Energy Department report tomorrow. They surged 5 million barrels in the week ended Oct. 22, the most since July. Stockpiles were at 366.2 million, 13 percent above the five-year average level.

“The market is very well-supplied,” Al-Naimi said at an industry gathering in Singapore yesterday. “A little bit oversupplied but it doesn’t seem to be depressing the price.”

Saudi Arabia is the biggest producer in the Organization of Petroleum Exporting Countries, a 12-member group that pumps about 40 percent of the world’s crude.

U.S. gasoline stockpiles are expected to have climbed 250,000 barrels last week, having tumbled 4.4 million in the previous week, the most in a year, the Bloomberg News survey showed. Distillate fuel inventories, including diesel and heating oil, probably declined to the lowest level since July.

Hedge funds and other large speculators increased wagers on rising crude prices by 9.3 percent in the seven days ended Oct. 26, according to the Commitments of Traders report from the U.S. Commodity Futures Trading Commission.

To contact the reporter on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net