Oil Gains First Day in Four After Surprise Drop in U.S. Supplies

Oil gained for the first day in four in New York after a surprise drop in U.S. crude stockpiles led investors to reduce bets that prices will decline.

Futures rose as much as 3.7 percent after sliding 8 percent in the past three days. Crude inventories dropped 3.1 million barrels last week, the American Petroleum Institute said yesterday. An Energy Department report today is forecast to show a gain of 1.5 million barrels. Traders holding short positions in oil futures, or bets that prices will fall, can’t book profits until they buy back contracts.

“With so many short positions around anything can spark a violent rally,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “We’ve seen positions by the more nimble groups taking shorts and it’s those people buying back.”

Crude for November delivery rose as much as $2.79 to $78.46 a barrel and was at $78.01 at 2:43 p.m. Singapore time. Futures yesterday slid 2.5 percent to $75.67, the lowest settlement since Sept. 23, 2010. Oil is down 15 percent this year.

Brent oil for November gained $1.88, or 1.9 percent, to $101.67 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $23.47 to U.S. futures, compared with a record close of $26.87 on Sept. 6.

Hedge Funds, Stocks

Hedge funds cut their bullish bets, or long positions, on oil by the most in almost two months in the week ended Sept. 27, according to the Commodity Futures Trading Commission. Concern that economic growth will falter sent crude to the biggest quarterly drop since 2008 in the three months ended Sept. 30.

Futures also gained after U.S. stocks surged. The Standard & Poor’s 500 Index rallied 4.1 percent in the final 50 minutes of trading in New York on speculation Europe may recapitalize its banks to tame its debt crisis. The S&P 500 and Nymex oil have moved in the same direction 89 percent of the time since Sept. 27, up from 67 percent in the 10 days before.

“We saw a natural rebound in the market coming from the European situation and the better stock market and that just followed through to the crude market,” said Ken Hasegawa, energy trading manager at broker Newedge in Japan, who says New York oil won’t rise above $90 a barrel for the rest of this year. “It was good timing for the rebound when the API data was published. It accelerated the gains in crude oil.”

OPEC Outlook

U.S. gasoline supplies dropped 5 million barrels last week, according to the industry-funded API. The Energy Department report was forecast to show a gain of 1.5 million. The API said supplies of distillates, a category that includes heating oil, slid 2 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. The API and Energy Department data have moved in the same direction 71 percent of the time over the past 10 years, according to data compiled by Bloomberg.

OPEC may cut production after its basket of crudes fell below $100 a barrel for the first time since February and Libyan output starts to rise. The Organization of Petroleum Exporting Countries’ benchmark fell to $99.65 on Oct. 3, down 18 percent from its highest level this year and within 2 percentage points of the 20 percent drop that’s deemed a bear market.

Saudi Spending

Ministers will hold their second meeting of the year on Dec. 14 in Vienna to decide how much of their oil the world will need in 2012. The group will reduce output to prevent Brent falling below $90 because Middle East members are increasing spending, according to Barclays Plc and Deutsche Bank AG.

Saudi Arabia, OPEC’s biggest producer, vowed to use “an iron fist” after 11 members of the security forces were injured by attackers during unrest in a Shiite Muslim town in the east, the official Saudi Press Agency said.

The government accused an unnamed “foreign country” of seeking to undermine the stability of the kingdom as a result of the violence in Awwamiya, in which the assailants, some on motorcycles, used machine guns and Molotov cocktails, the Riyadh-based news service reported late yesterday. A man and two women were also injured, the news service said.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net.

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