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Crude Oil Surges Most Since May on European Efforts to Solve Fiscal Crisis

Crude oil rose the most in more than four months on speculation European leaders will bolster efforts to contain the region’s sovereign-debt crisis, lessening its impact on the global economy and commodities demand.

Futures climbed 5.3 percent after U.S. Treasury Secretary Timothy F. Geithner predicted Europe will intensify efforts to contain its debt problems after a chiding from counterparts around the world. Greek Prime Minister George Papandreou won a vote on a property tax that’s key to the release of European Union and International Monetary Fund aid and averting default.

“Suddenly everyone is looking at Europe with rose-tinted glasses,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “There are a lot of structural issues that have to be worked out. If they fail at just one of them, we could easily come in tomorrow morning with oil below $80.”

Crude oil for November delivery advanced $4.21 to settle at $84.45 a barrel on the New York Mercantile Exchange. It was the biggest gain since May 9. Oil has dropped 11 percent since the end of June, the biggest quarterly loss since 2008. Prices are down 4.9 percent this month and 7.6 percent this year.

Prices retreated from the settlement as the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles rose 568,000 barrels to 347.3 million. November oil was up $3.50, or 4.4 percent, to $83.74 a barrel in electronic trading at 4:33 p.m.

Brent oil for November settlement increased $3.20, or 3.1 percent, to end the session at $107.14 a barrel on the London- based ICE Futures Europe exchange. The contract is down 4.7 percent this quarter. It traded at a premium of $22.69 to crude in New York, down from a record $26.87 on Sept. 6.

Containing the Crisis

Geithner said in a television interview on ABC that comments by European leaders at the IMF meetings in Washington last week foreshadowed an “escalation” in measures to contain the crisis. President Barack Obama said yesterday that European governments are “trying to take responsible actions, but those actions haven’t been quite as quick as they need to be.”

Papandreou’s Socialist Pasok party won the vote in parliament by 155 to 142 after Finance Minister Evangelos Venizelos told Greeks they face economic collapse if they don’t plug a budget gap that is exceeding the target set in a bailout, putting an 8 billion-euro ($11 billion) aid payment due next month at risk.

The Greek prime minister traveled to Berlin two days before German lawmakers ratify an overhaul of the euro rescue fund, pledging success in a struggle to restore budget balance. Papandreou will dine with German Chancellor Angela Merkel, who has stepped up her defense of the euro and toned down calls to punish Greece for its fiscal management.

‘Irrational Exuberance’

“We’re seeing some irrational exuberance due to optimism that the Europeans will come to an agreement about the Greek debt crisis,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “A resolution of the Greek crisis wouldn’t have that big an impact on growth or demand. The market move is much greater than it should be.”

The Standard & Poor’s 500 Index and the Dow Jones Industrial Average rose at least 2.8 percent in intraday trading before paring gains after Nymex floor trading closed. The S&P GSCI Index of 24 raw materials rose 3.3 percent to 620.02.

The dollar fell 0.4 percent to $1.3587 against the euro. The Dollar Index, which tracks the dollar against currencies including the yen, pound and Swedish krona, declined 0.7 percent to 77.781.

‘Risk-On’ Day

“It’s a ‘risk-on’ day for oil,” said Thorbjorn Bak Jensen, an analyst at Global Risk Management in Middelfart, Denmark, who predicts Brent will average $107 in the fourth quarter. “Investors are hoping the European Central Bank will pull a rabbit out of the hat in the form of an increase in the strength of the bond-buying program.”

U.S. crude supplies probably rose 2.05 million barrels in the week to Sept. 23 as demand weakened in the world’s largest oil-consuming country, according to the median estimate of 14 analysts surveyed by Bloomberg News before an Energy Department report tomorrow. Gasoline stockpiles are expected to have climbed 1 million barrels to the highest level since July.

Gasoline for October delivery rose 12.61 cents, or 4.9 percent, to settle at $2.6955 a gallon in New York. It was the biggest gain since May 9.

“The market can be up or down $2 depending on what direction the wind is blowing,” said Stephen Schork, president of the Villanova, Pennsylvania-based Schork Group Inc. “Nothing fundamental has changed.”

Iraqi Output

Iraq, pumping oil at the highest rate in 11 years as international energy companies develop its fields, expects to remain exempt from Organization of Petroleum Exporting Countries output restrictions, Adnan Al Janabi, the chairman of the parliament’s oil and energy committee said today.

The Middle East nation can increase production to 5 million barrels a day, from about 2.81 million currently, without the approval from OPEC, Janabi said at the Iraq 2011: Future Energy conference organized by The Energy Exchange in Istanbul.

Oil volume in electronic trading on the Nymex was 500,941 contracts as of 4:32 p.m. in New York. Volume totaled 558,421 contracts yesterday, 15 percent below the average of the past three months. Open interest was 1.38 million contracts.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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