Oil Trades Near 27-Month High as Economic Recovery May Boost Energy Demand

Oil traded near a 27-month high after growth in U.S. and European manufacturing bolstered speculation the economic recovery will strengthen fuel demand.

Futures advanced 0.2 percent yesterday after the Institute for Supply Management’s U.S. factory index climbed to the highest in seven months. European manufacturing also grew more than estimated, powered by an export-led expansion in Germany, the region’s largest economy. U.S. crude inventories probably fell a fifth week, a Bloomberg News survey showed.

“In the U.S. and euro area, people are looking for any signs of recovery and for that to flow on to demand,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. The manufacturing data “would have had a positive impact. We’re looking at crude prices in the $91 to $92 a barrel range,” he said.

Crude for February delivery traded at $91.65 a barrel, up 10 cents, in electronic trading on the New York Mercantile Exchange at 8:40 a.m. London time. Yesterday, the contract rose as high as $92.58, the highest price since Oct. 7, 2008. Brent crude for February settlement rose 40 cents to $95.24 a barrel on the ICE Futures Europe exchange in London.

The U.S. factory index climbed to 57 last month from 56.6 in November. A reading greater than 50 points to expansion. Construction spending in the nation, the world’s biggest oil user, rose in November for a third month, boosted by federal government projects, the Commerce Department said yesterday.

An index measuring factory activity in the euro area rose to 57.1 in December from 55.3 the previous month, London-based Markit Economics said yesterday. That’s higher than the 56.8 reported earlier for the month.

Bullish Bets

Hedge funds raised bullish bets on crude to the highest level in more than four years on speculation that futures will continue to climb as the U.S. economy recovers. Oil rallied 15 percent last year, adding to a 78 percent surge in 2009.

The funds and other large speculators increased net-long positions, or wagers on rising prices, by 4.6 percent in the seven days ended Dec. 28, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the biggest total in records going back to June 2006.

Crude has advanced as U.S. stockpiles shrink, signaling increased demand. Inventories are expected to have dropped for a fifth week last week, the longest decline since July 2009, according to a Bloomberg News survey before an Energy Department report tomorrow. Supplies fell 1.75 million barrels from 339.4 million in the week ended Dec. 31, based on the median estimate of eight analysts.

Gasoline stockpiles probably increased 50,000 barrels from 214.9 million, the survey showed. Distillate fuel inventories, including heating oil and diesel, may have climbed 625,000 barrels from 161 million. The industry-funded American Petroleum Institute, which collects stockpile information on a voluntary basis, will issue its data today.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Yee Kai Pin in Singapore at kyee13@bloomberg.net

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.