Oil Fluctuates After Best Month Since October as Economy Counters Supplies

Oil swung between gains and losses after the biggest monthly advance since October as speculation that global economic growth will boost fuel demand countered concern rising supplies will limit price gains.

Futures were little changed in New York today after advancing 8.7 percent last month. U.S. manufacturing expanded “at a steady pace across the nation,” the Federal Reserve said, while reports showed factory output improving in China. U.S. crude stockpiles increased almost four times more than forecast and OPEC output advanced to the highest in more than three years.

“The economic data feeds into the demand picture for the U.S.,” Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney, said by phone. “While it’s not boom time, it’s a lot more positive than the double-dip recession scenario we were looking at last year and should add to the firm tone of the oil market.”

Oil for April delivery was at $106.82 a barrel, down 25 cents, in electronic trading on the New York Mercantile Exchange at 3:48 p.m. Singapore time. The contract yesterday rose 52 cents, or 0.5 percent, to $107.07, the highest settlement since Feb. 27. Prices are 7.2 percent higher in the past year.

Brent oil for April settlement on the London-based ICE Futures Europe exchange increased 10 cents to $122.76 a barrel. The European benchmark contract’s premium to New York-traded West Texas intermediate grade widened for a second day to $15.94. The spread reached a record $27.88 on Oct. 14.

Economic Growth

The U.S. economy expanded at a “modest to moderate pace” the past two months, the Federal Reserve said in its Beige Book survey. A Chinese manufacturing index rose to 51.0 in February from 50.5 in January, the Beijing-based National Bureau of Statistics and the China Federation of Logistics and Purchasing said today, while an index by HSBC Holdings Plc and Markit Economics climbed to 49.6 from 48.8. A reading above 50 indicates expansion. The U.S. and China are the world’s biggest oil consumers.

Crude output by the Organization of Petroleum Exporting Countries increased 255,000 barrels to an average 31.1 million barrels a day in February from 30.8 million the prior month, according to a Bloomberg survey of oil companies, producers and analysts. Production was the highest since November 2008. Iran’s output was the lowest in more than nine years.

Iran Supply

Oil has risen this year as Western nations tighten sanctions on Iran over its nuclear program. Iran has threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s oil, in response to an embargo.

Brent crude prices may average as much as $135 a barrel this year if international relations with Iran deteriorate, compared with a current forecast of $115, Barclays Capital said in a report today.

“There are new fears about the security of the Strait of Hormuz,” Tim Whittaker, an analyst at Barclays in London, said in the report. “We still contend that the risk of either an Israeli or a U.S. strike on the Iranian nuclear facilities is low, but it has risen, in our view, from 5-10 percent last year to 25-30 percent now.”

Excluding Iran from the global crude market would increase the shortfall between worldwide supply and demand six-fold, according to U.S. Energy Department calculations using February production and consumption estimates. Global fuel use averaged 3 million barrels a day more than output when Iran is excluded, and 500,000 more when it is included, the department said in a report yesterday.

Saudi Rigs

Saudi Arabia is deploying the most oil rigs in four years as it prepares for possible shortages caused by tension with Iran. The number of rigs used more than doubled in January from a year earlier, the biggest annual increase on record, data from Houston-based Baker Hughes Inc. (BHI) showed.

Oil in New York dropped as much as 1.6 percent yesterday after the Energy Department said crude stockpiles rose 4.2 million barrels last week. They were forecast to climb 1.1 million, according to the median projection of 12 analysts in a Bloomberg News survey. Supplies at Cushing, Oklahoma, the delivery point for New York-traded oil, rose 1.6 million barrels to 33.8 million, the highest level since Aug. 5.

Gasoline inventories fell 1.6 million barrels last week, compared with a projected 425,000 barrel decline. Distillate stockpiles, including heating oil and diesel, slid 2.1 million barrels. They were forecast to drop 750,000 barrels.

The U.S. exported more gasoline, diesel and other fuels than it imported in 2011 for the first time since 1949, the Energy Department said. Shipments of petroleum products abroad exceeded imports by 439,000 barrels a day, the department said in the Petroleum Supply Monthly report. Refiners exported record amounts of gasoline, heating oil and diesel to meet higher global demand while U.S. fuel consumption sank.

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

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