Oil Rises, Capping Weekly Decline, on Demand Growth Optimism

Oil rose, capping its biggest weekly decline in New York in three weeks, on speculation rising demand may absorb excess inventories in the U.S., the largest consumer of crude.

A U.S. government report today showed growth in the world’s biggest economy picked up in the last quarter, suggesting fuel consumption may erode stockpiles. New York futures narrowed their discount to North Sea Brent, which reached more than $12 a barrel after Energy Department data showed stockpiles grew 2.3 percent in the U.S. storage hub at Cushing, Oklahoma, last week.

“In the long run, we see a rising oil price because of the rise in energy demand, which clearly will go up significantly,” Royal Dutch Shell Plc Chief Executive Officer Peter Voser said today in Davos, Switzerland. There is a “revolution” in emerging markets in energy use and there will be “definitely growth over the next few years” in energy demand, he said.

Oil for March delivery on the New York Mercantile Exchange rose as much as 67 cents, or 0.8 percent, to $86.31 a barrel and was at $86.15 at 1:48 p.m. London time. The contract is 3.3 percent lower for the week, the biggest drop since the week ended Jan. 7, and down 5.7 percent this year.

Brent crude for March settlement rose 40 cents, or 0.4 percent, to $97.79 a barrel on the London-based ICE Futures Europe exchange. The contract has gained 0.2 percent this week and is up 3.2 percent this year.

Economic Growth

Economic growth in the U.S. accelerated in the fourth quarter, a government report showed. Gross domestic product rose at a 3.2 percent annual pace, up from a 2.6 percent rate in the previous three months.

Brent’s premium over Nymex-traded West Texas Intermediate was at $11.64 a barrel, after widening to a record $12.49. Investors are buying Brent contracts as a buildup of supplies at Cushing, the delivery point for New York-traded West Texas Intermediate oil, skews the U.S. grade’s reliability as an indicator of demand.

“A combination of oversupply in Cushing and strong demand from European refineries has pushed the spread to a record,” said Thorbjoern Bak Jensen, an analyst at Global Risk Management in Middelfart, Denmark. “Seaborne exports from OPEC have been reported higher and it’s said the Saudis are producing more, though the Saudis themselves deny it.”

OPEC Won’t ‘Interfere’

Secretary-General Abdulla El-Badri of the Organization of Petroleum Exporting Countries said in interview today with CNBC in Davos he sees no need to “interfere” in the oil market and won’t hesitate to act if required.

Analysts at JPMorgan Chase & Co. said in a report yesterday there were indications that some OPEC members were raising output unilaterally.

“We take that as a strong indication that the producer group does not want oil prices to rise too high, too quickly,” JPMorgan’s analysts, led by New York-based Lawrence Eagles, said in the report. “OPEC continues to supply the marginal barrel and therefore sets the price for crude oil.”

OPEC will boost shipments by 330,000 barrels a day through the middle of February, the group’s first increase since the month ended Dec. 25, according to tanker-tracker Oil Movements.

Oil will rise to $100 a barrel, possibly in the first half of this year, and may eventually peak at $140, Duke Energy Corp. Chief Executive Officer Jim Rogers said in Davos today.

OPEC’s El-Badri said on Jan. 26 that oil prices are in a “comfortable zone,” adding that the producer group is concerned about Europe’s sovereign debt crisis. The group, next scheduled to review its production quotas at a meeting in June, is also wary that measures taken by China to slow its economy will impede the country’s energy demand, El-Badri said.

Prices in New York may extend their decline next week as inventories increase amid a decline in refinery utilization rates and fuel demand, a Bloomberg News survey showed.

Seventeen of 37 analysts, or 46 percent, forecast crude oil will drop through Feb. 4. Fourteen respondents, or 38 percent, predicted prices will climb and six estimated little change. Last week, 58 percent said futures would decrease.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; 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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