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Crude Oil Gains as Chinese Economic Growth Counters Europe Debt Concern

Oil rose, trimming the biggest decline in almost two weeks, on signs of accelerating growth in China and shrinking fuel inventories in the U.S.

Futures gained as much as 1.7 percent after a report showed Chinese manufacturing expanded at the fastest rate in seven months in November. U.S. government data today may show oil stockpiles declined 1.15 million barrels last week. Crude advanced as the dollar declined for the first time in four days, increasing the appeal of commodities to investors.

“Sentiment for oil is getting better, with U.S. data quite supportive on the demand side and Chinese figures stronger than expected,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna. “But with the possibility of further rate hikes in China, prices will likely be capped at $90 this year.”

The January contract rose as much as $1.48 to $85.59 a barrel on the New York Mercantile Exchange and was at $85.47 at 1:30 p.m. London time. Brent crude for January settlement rose as much as $1.61, or 1.9 percent, to $87.53 a barrel on the ICE Futures Europe exchange in London. Oil has risen 7.7 percent so far this year in New York and 12 percent in London.

China’s Purchasing Managers’ Index increased to 55.2 from 54.7 in October, according to the country’s logistics federation today. That was higher than the 54.8 median estimate of 14 economists surveyed by Bloomberg News.

Europe’s Debt

Oil prices slumped 1.9 percent yesterday as concern mounted that Europe’s debt crisis is spreading to countries including Spain, Portugal and Italy. It was the biggest one-day decline since Nov. 17. The European Union approved an 85 billion-euro ($111 billion) rescue package for Ireland Nov. 28.

The region’s debt woes have depressed the euro against the dollar, limiting the appeal of commodities priced in the U.S. currency. The European currency was at $1.3105 today, up 0.9 percent, as the greenback fell against all but one of its 16 major peers.

“China’s economy will continue to expand as much as possible, and in five years their oil consumption will be much bigger,” said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. “The market is more focused on the dollar and the euro and worried about the credit issues in Europe.”

An Energy Department report today may show U.S. crude and distillate fuel stockpiles declined last week. Oil capped its third monthly increase in November, climbing 3.3 percent.

U.S. inventories of distillates, which include heating oil and diesel, dropped 1.1 million barrels, according to a Bloomberg News survey of analysts before today’s report. The industry-funded American Petroleum Institute yesterday said they climbed 224,000 barrels.

Supplies of crude declined 1.15 million barrels, according to the median of 16 responses in the survey. The API yesterday said they dropped 1.14 million barrels.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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