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Oil Rises to 12-Week High as Declining Supplies Spur Bull Market

Crude oil climbed to a 12-week high in New York on declining stockpiles at a U.S. storage hub, putting the contract in a so-called bull market.

Futures rose 2.1 percent, erasing the loss for the year, as supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate, the grade traded in New York, fell last week, a satellite survey showed. Brent oil in London traded at the lowest premium to WTI since July. Crude pared gains after a meeting of European finance ministers was canceled.

“Cushing stockpiles have been coming down for a while now and everyone seems to have just noticed and begun trading on it,” said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. “Brent is still over $110, so it’s safe to say WTI is still underpriced and could move higher.”

Crude oil for December delivery increased $1.90 to $93.17 a barrel on the New York Mercantile Exchange, the highest settlement price since Aug. 2. Futures have rallied 23 percent since Oct. 4 and settled above the 2010 closing price for the first time since Aug. 3. A 20 percent gain is the common definition of a bull market.

Prices dropped from the settlement as the industry-funded American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles rose 2.71 million barrels to 340 million last week. December oil was up $1.32, or 1.5 percent, to $92.59 a barrel in electronic trading at 4:33 p.m.

December futures ended the session at a 24-cent premium to January. The front-month contract yesterday settled higher than the next month for the first time since Nov. 20, 2008. This so- called backwardation typically signals a decline in supply or an increase in demand in the near term.

‘Violent Change’

“The spreads in curve usually shift gradually,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We’re in the midst of a violent change in the shape of the curve, which has a lot of people rushing for protection.”

Brent oil for December settlement declined 53 cents, or 0.5 percent, to end the session at $110.92 a barrel on the London- based ICE Futures Europe exchange. The spread between West Texas Intermediate oil traded on the Nymex and Brent narrowed to $17.75, the smallest since July 6. The spread was at a record high of $27.88 on Oct. 14.

Oil in New York may extend gains if it climbs past the 200- day moving average, Armstrong said. Futures last closed above the technical signal on July 29.

Moving Average

“We’re just below the 200-day moving average and could easily exceed it for the first time since the end of July,” Armstrong said. The average is $94.75.

Oil prices in New York may surge to $105 after the shift into backwardation, Bank of America Corp. said in a report. Brent crude may rally toward $115, it said.

“It’s like someone is stuck on the wrong side of the market and getting beaten up,” said Stephen Schork, president of the Villanova, Pennsylvania-based Schork Group Inc. “We’ve had negative economic headlines but WTI continues to rise. It’s disconnected from the fundamentals and there’s no telling how high it will go.”

U.S. consumer confidence unexpectedly slumped in October to the lowest level since March 2009, a report showed today. The Conference Board’s sentiment index decreased to 39.8 from a revised 46.4 reading in September. Economists projected the October gauge would rise to 46, according to a Bloomberg survey.

Crude inventories at Cushing dropped 760,000 barrels to 28.1 million from Oct. 18 to Oct. 21, according to satellite images taken by Longmont, Colorado-based DigitalGlobe Inc.

U.S. Stockpiles

Oil supplies nationwide probably climbed 1.48 million barrels, according to the median 12 analyst projections in a Bloomberg News survey before an Energy Department report tomorrow. Supplies in the prior week tumbled to the lowest level since February 2010.

“It looks like we’re looking at a belated catch-up to all the inventory draws of the last few months,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. “It was time for the spread between WTI and Brent to come in. It’s turned out that it’s more about WTI surging than Brent coming down.”

Summits of the 27 European Union leaders and 17 leaders of the euro area will take place tomorrow in Brussels as scheduled, EU President Herman Van Rompuy’s office said. The EU-27 summit starts at 6 p.m. tomorrow, followed by the euro meeting at 7:15 p.m. A separate meeting of EU finance ministers was canceled.

German Vote

German Chancellor Angela Merkel is set to win majority support for a planned increase in the size of the euro rescue fund in a legislative vote tomorrow, lawmakers said. Merkel is due to address the lower house of parliament tomorrow at about noon before the vote.

At stake are plans to leverage the 440 billion-euro ($613 billion) European Financial Stability Facility as part of a package of measures to fight the crisis that will be discussed the same day in Brussels.

Oil volume in electronic trading on the Nymex was 999,363 contracts as of 3:33 p.m. in New York. Volume totaled 1.14 million contracts yesterday, the most since Feb. 24 and 68 percent above the three-month average. 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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