Oil Rises to Six-Month High on U.S. Fuel-Supply Drop, Fed Move
Oil rose to the highest level in six months after a U.S. government report showed that fuel supplies tumbled and the Federal Reserve said it will buy an additional $600 billion of Treasuries through June to boost the economy.
Oil jumped 0.9 percent as gasoline inventories fell 2.69 million barrels to 212.3 million last week, the lowest level since Nov. 20, 2009, the Energy Department said. The dollar touched a nine-month low versus the euro after the Fed said it will boost asset purchases to spur economic growth.
The product supply drop “caused a knee-jerk reaction, and prices rallied,” said Matt Smith, a commodities analyst for Summit Energy in Louisville, Kentucky. “The Fed move is going to create weakness in the dollar and it shows that the Fed is going to be proactive about stimulating the economy in the long term. Both of those factors are bullish for crude.”
Crude oil for December delivery advanced 79 cents to $84.69 a barrel on the New York Mercantile Exchange, the highest settlement price since May 3. Futures have risen 6.4 percent in the past year.
Brent crude for December settlement gained 97 cents, or 1.1 percent, to $86.38 a barrel on the London-based ICE Futures Europe exchange.
Distillate supplies, which include heating oil and diesel, fell 3.57 million barrels to 164.9 million. It was the biggest drop in distillate fuel supplies since the week ended Sept. 19, 2008. Inventories were 19 percent above the five-year average.
Gasoline stockpiles were forecast to be little changed from the previous week’s total of 214.9 million barrels, according to the median of 17 analyst estimates in a Bloomberg News survey. They were 6 percent above the five-year average.
Gasoline Increases
Gasoline for December delivery gained 2.84 cents, or 1.4 percent, to settle at $2.138 a gallon, the highest level since Oct. 18.
“The big drops in fuel stocks are due to the low production we are seeing right now,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “The margins are still weak, so refiners see no need to ramp up production any time soon.”
Inventories of crude oil rose 1.95 million barrels to 368.2 million, the department said. Supplies were forecast to climb by 1.5 million barrels. They were 14 percent above the five-year average.
Fed Purchases
Crude oil also advanced on projections that the Fed’s stimulus measures will weaken the dollar, bolstering the appeal of commodities to investors.
The dollar dropped 0.7 percent to $1.4136 per euro at 4:04 p.m. in New York. It touched $1.4179 after the Fed announcement, matching a low reached Jan. 26.
The U.S. currency has decreased 11 percent versus the euro since Aug. 27, when Fed Chairman Ben S. Bernanke said the central bank “will do all that it can” to sustain economic growth, fueling speculation that a resumption of asset purchases would debase the U.S. currency.
The Fed purchases “may actually lead to economic growth and improved demand, which will send oil higher,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at MFC Global Investment Management in Boston.
Fed policy makers, who said new purchases will be about $75 billion a month, “will adjust the program as needed to best foster maximum employment and price stability.”
Quantitative Easing
The Fed’s Open Market Committee was forecast to announce purchases of at least $500 billion in securities at its meeting in Washington under a policy called quantitative easing, according to 29 of 56 economists surveyed by Bloomberg News before the announcement.
The Fed said the economy has been “disappointingly slow” to meet its objectives.
“I guess it’s nice that they’re doing something, but I don’t know that this is going to translate into increased physical demand for petroleum,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It’s an influence on market sentiment and can have an impact in that way.”
Gains in U.S. manufacturing and employment may spur fuel consumption, causing additional increases in oil prices. Demand for fuels, averaged over four weeks, rose for the first time since September in the Energy Department report, gaining 1.2 percent to 18.9 million barrels a day.
Manufacturing, Unemployment
The Institute for Supply Management reported services in the U.S. expanded in October at the fastest pace in three months. The index of non-manufacturing businesses, which covers about 90 percent of the economy, rose to 54.3 from 53.2 in September. Readings greater than 50 signal growth.
Companies in the U.S. boosted payrolls by more than forecast in October, according to figures from ADP Employer Services. Employment increased by 43,000 after a revised 2,000 drop in September.
Oil volume in electronic trading on the Nymex was 659,675 contracts as of 4:05 p.m. in New York. Volume totaled 503,256 contracts December, 28 percent below the average of the past three months. Open interest was 1.43 million contracts, the highest level in more than two weeks.
To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net; 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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