Oil Trades Near Highest in a Month as Goldman Sees ’Upside Risk’

Oil traded near the highest price in more a month after Goldman Sachs Group Inc. (GS) cited “upside” potential, countering forecasts for rising U.S. inventories.

Futures were little changed after advancing 2.3 percent yesterday before Energy Department data today that may show supplies climbed 2 million barrels. An industry report that is often a precursor for U.S. stockpiles indicated yesterday that they dropped for a third week. An improving economic outlook in Europe and declining crude supplies may present “a real upside risk” to Brent prices, Goldman Sachs said in a report yesterday.

“The market’s just looking for some sort of price direction,” said David Lennox, a resource analyst at Fat Prophets in Sydney who predicts prices will trade between $80 and $90 a barrel. “Traders aren’t willing to push prices higher given the weak economic outlook in the U.S. and what’s happening in Europe.”

Crude for November delivery was at $88.48 a barrel, up 0.2 percent, in electronic trading on the New York Mercantile Exchange at 2:08 p.m. Singapore time. The contract yesterday rose $1.96 to $88.34, the highest close since Sept. 15. The more-actively traded December contract increased 15 cents to $88.68. Prices are down 3.6 percent this year.

Brent oil for December settlement was at $111.54 a barrel, up 0.4 percent, on the London-based ICE Futures Europe exchange. The contract increased 0.9 percent to $111.15 yesterday.

Brent ‘Upside Risk’

Brent futures, which dropped 12 percent in London trading in August and September, may fall “too low” because of ``uncertainty'' over the economy, Goldman Sachs said in its report. The so-called backwardation in Brent contracts, where prices for soonest delivery are higher than those for later months, creates an incentive to draw from inventories, Goldman Sachs said.

“Persistent uncertainty over Europe would likely continue to increase the upside risk to Brent crude oil prices,” David Greely, a managing director for Goldman Sachs in New York, said in the report. “Destocking makes the market increasingly vulnerable to upside demand surprises or supply shortfalls.”

German Chancellor Angela Merkel said yesterday that a European Union summit on Oct. 23 will be an “important step” though not the final one to solve the region’s sovereign debt crisis.

U.S. crude oil supplies fell 3.1 million barrels last week, the American Petroleum Institute said yesterday. The Energy Department report today may show they climbed a second week, according to the median of 13 analyst estimates in a Bloomberg News survey.

Gasoline inventories dropped 1.6 million barrels, according to API data. They are forecast to slip 1.5 million barrels, the Bloomberg survey shows. Distillate stockpiles, including heating oil and diesel, decreased 2.2 million barrels compared with an estimate for a 1.5 million decline.

The industry-funded 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: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

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.