Oil Climbs to 7-Month High as Global Manufacturing Growth Boosts Optimism

Oil climbed to the highest level in more than seven months as manufacturing in the U.S. and Asia expanded in December and concern persisted that further sanctions against Iran may disrupt shipments.

Futures gained 4.2 percent after the Institute for Supply Management’s U.S. factory index rose more than expected, adding to increases in China and India. An Iranian military official warned the U.S. against sending an aircraft carrier back to the Persian Gulf.

“It looks like the U.S. economy is coming back,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “The upside risk for prices is greater than the downside risk.”

Crude oil for February delivery rose $4.13 to settle at $102.96 a barrel on the New York Mercantile Exchange, the highest level since May 10. Futures climbed 8.2 percent in 2011, the third consecutive annual increase.

Brent oil for February settlement advanced $4.75, or 4.4 percent, to $112.13 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to West Texas Intermediate futures widened to $9.17.

The ISM’s U.S. factory index rose to 53.9 in December from 52.7 a month earlier, the Tempe, Arizona-based group’s data showed today. U.S. construction spending (CNSTTMOM) rose in November for a third time in four months. Building outlays climbed 1.2 percent, exceeding the median estimate in a Bloomberg survey of 0.5 percent, Commerce Department figures showed.

Asian Manufacturing

China’s purchasing managers’ index rose to 50.3 in December from 49 in November, the Beijing-based logistics federation said Jan. 1. A number above 50 indicates expansion. India’s Purchasing Managers’ Index rose the most in six months in December, HSBC Holdings Plc and Markit Economics said yesterday.

Futures also rose as the U.S. and its allies increased pressure on Iran to halt what they say may be a covert nuclear weapons program. Sanctions signed into law by President Barack Obama on Dec. 31 aim to deter dealings with the Iranian central bank. The European Union will be ready by Jan. 30 to decide whether to extend sanctions, Michael Mann, a EU spokesman, said yesterday in an e-mailed statement.

Ataollah Salehi, the head of Iran’s army, warned the U.S. against sending an aircraft carrier back to the Persian Gulf. The USS John C. Stennis passed eastward through the Strait of Hormuz a week ago. The U.S. rejected the warning and said its deployments were part of regularly scheduled movements.

Strait of Hormuz

“We are not seeking a confrontation,” Victoria Nuland, a spokeswoman for the State Department, said during a briefing in Washington. The U.S. military will continue to play a role in ensuring freedom of navigation, she said.

Iran doesn’t intend to disrupt shipping in the Strait of Hormuz, Deputy Navy Commander Rear Admiral Mahmoud Mousavi said yesterday, according to Press TV. One-fifth of oil traded worldwide moved through the channel connecting the Persian Gulf to the Gulf of Oman last year, the U.S. Energy Department said Dec. 30.

The warnings show that Iran is coming under increasing pressure because of international sanctions, Jay Carney, the White House press secretary, said in Washington. He said Iran is in a “position of weakness.”

“There’s still a risk that some unexpected event in the Middle East will disrupt the flow of oil,” Sieminski said. “This will continue to be the main upside risk for prices.”

Equities Advance

The manufacturing data also sent equities higher. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average increased 1.5 percent at 4:05 p.m. The euro climbed 0.9 percent to $1.3053. A stronger common currency and weaker dollar increase oil’s appeal as an investment alternative.

“Global manufacturing is pulling just about every market higher,” said Phil Flynn, vice president of research at PFGBest in Chicago. “All of the figures we’ve seen across the globe have been encouraging.”

German unemployment dropped more than forecast in December, adding to optimism that Europe’s economy will grow. The number of people out of work fell a seasonally adjusted 22,000 to 2.89 million, the Nuremberg-based Federal Labor Agency said today. A decline of 10,000 was expected, according to the median of 20 economist estimates in a Bloomberg survey. The adjusted jobless rate fell to 6.8 percent.

Volume was 616,687 as of 4:05 p.m. in New York, the most since Dec. 14. Volume totaled 313,927 on Dec. 30. Open interest was 1.33 million. The exchange has a one-business-day delay in releasing full volume and open interest data.

To contact the reporters on this story: Asjylyn Loder in New York at aloder@bloomberg.net; 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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