Oil Rises From Six-Month Low; Price Declines Exaggerated

Oil rose from the lowest settlement in six months in New York after economic data in Japan beat estimates and technical indicators signaled declines in crude prices may be exaggerated.

West Texas Intermediate advanced as much as 1 percent, climbing for the first time in five days. Futures, down 11 percent this month on concern Europe’s debt crisis will curb fuel demand, rebounded after falling to technical support levels. Japan’s economy expanded an annualized 4.1 percent in the first quarter. Oil also gained as Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD) were scheduled to reverse flows on the Seaway pipeline, pumping crude south from Cushing, Oklahoma, to the Gulf Coast.

“There looks to be a bit of consolidation,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “Prices have declined steeply. Europe is seen as a source of risk and we could have several months of this situation hanging over the market’s head.”

Crude for June delivery rose as much as 91 cents to $93.72 a barrel in electronic trading on the New York Mercantile Exchange and was at $93.25 at 3:04 p.m. Singapore time. The contract yesterday fell 1.2 percent to $92.81, the lowest close since Nov. 2. Prices are down 5.7 percent this year.

Brent oil for July settlement dropped 39 cents to $109.36 a barrel on the London-based ICE Futures Europe exchange. The June contract expired yesterday, falling 53 cents to $111.71. The European benchmark contract was at a premium to West Texas Intermediate of $15.75.

Technical Indicators

Oil advanced in New York after reaching technical support at $92.75 a barrel, according to data compiled by Bloomberg. On the daily chart, that’s the 50 percent Fibonacci retracement of the rise from October’s intraday low of $74.95 to the March high of $110.55 and is where futures reversed a decline in December.

Crude’s 14-day relative strength index has been below 30 for the past week, signaling prices have fallen too quickly and further losses may not be sustainable. Buy orders tend to be clustered near chart-support levels.

Japan’s economic growth last quarter compared with a median estimate of 3.5 percent by 27 economists in a Bloomberg News survey. Singapore’s non-oil domestic exports increased 8.3 percent in April, compared with a median estimate of 5.9 percent in a separate survey.

Oil has fallen this week as Greece failed to agree on a coalition government following May 6 elections, raising concern that Europe’s debt crisis will worsen and derail the global economic recovery. The European Central Bank said yesterday it will temporarily stop lending to some Greek banks to limit its risk. The country announced a caretaker administration and will probably hold new elections next month.

Seaway Reversal

Prices dropped yesterday after U.S. stockpiles rose to the highest level since 1990 and a report signaled the nation may release emergency supplies. Crude inventories climbed 2.1 million barrels last week to 381.6 million, figures from the Energy Department showed.

The U.S. has called on other Group of Eight nations to prepare to release strategic oil reserves because of the full implementation of the European Union’s ban on imports from Iran starting July, the Kyodo news service reported, citing unidentified officials familiar with Japan-U.S. ties.

Enbridge and Enterprise are expected to reverse the Seaway pipeline today, according to a filing with federal regulators. A rise in Canadian and Midwest U.S. oil production, and limited transportation out of the Cushing storage hub, have created a supply glut.

Mainline Capacity

“Oil inventories being built up in the Midwest, with nowhere to go, will start to be relieved because of the pipeline,” Victor Shum, managing director at consultant Purvin and Gertz Inc. in Singapore. “The recent moderation in oil prices may be temporary, global oil demand is likely to strengthen in the summer.”

Enbridge, the biggest carrier of Canadian oil to the U.S., said yesterday it will spend about $3 billion to boost the capacity of its mainline system and give western producers access to refiners in the Midwest and Quebec.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

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

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