Oil Rises First Time in Seven Days; Goldman Sees Tighter Supply

Oil rose for the first time in seven days in New York after China pledged to boost the nation’s economy and Goldman Sachs Group Inc. said the balance between supply and demand of crude is tightening.

West Texas Intermediate futures gained as much as 0.8 percent after settling at the lowest level in almost seven months on May 18. The extent of oil’s decline was unwarranted, Goldman said in a report. China will focus more on bolstering economic growth, the official Xinhua News Agency reported yesterday, citing Premier Wen Jiabao. Crude’s relative strength index remained below 30, signaling it may be oversold.

“Chinese growth continues to be sustained and robust,” said Christopher Bellew, senior broker at Jefferies Bache Ltd. in London. “The emphasis for oil prices is ultimately where demand is growing the most strongly, such as China and India. Prices seem to have found a bottom at last.”

Crude for June delivery rose as much as 72 cents to $92.20 a barrel in electronic trading on the New York Mercantile Exchange and was at $91.83 at 1:33 p.m. London time. It fell 1.2 percent on May 18 to $91.48, the lowest close since Oct. 26 and expires today. The more-active July contract climbed 33 cents to $92.13. Prices are 7 percent lower this year.

Brent oil for July settlement rose 82 cents, or 0.8 percent, to $107.96 a barrel on the London-based ICE Futures Europe exchange.

The front-month European benchmark contract was at a premium to West Texas Intermediate of $15.81. Last week, the gap narrowed 4.9 percent with the activation of a pipeline that may ease a glut in U.S. crude inventories.

Seaway Link

Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) started shipping oil on May 19 through the 150,000 barrel-a-day Seaway pipeline from Cushing, Oklahoma, to Houston-area refineries, the companies said in a statement that day.

“Despite concerns over the softening economic data, oil demand continues to improve,” David Greely, head of energy research at Goldman Sachs in New York, said in the e-mailed report. “The supply of oil actually available to the market is increasingly constrained by the inability of Iran to market its oil owing to the effects of US and European sanctions.”

Oil in New York has long-term technical support at $89.83 a barrel, according to data compiled by Bloomberg. On the weekly chart, that’s the 50 percent Fibonacci retracement of the intraday decline to $32.40 in December 2008 from a record high of $147.27 in July that year. Futures last traded at that price in November 2011.

Saudi Supplies

Crude’s 14-day RSI has been below 30 since May 11, signaling further losses may not be sustainable. Buy orders tend to be clustered near chart-support levels. The RSI was at 23 today.

Brent, the benchmark price for more than half the world’s petroleum, has dropped about 3 percent since May 13, when Saudi Arabia’s Oil Minister Ali al-Naimi said it should fall to $100 a barrel because global supply is outweighing demand.

Prices slid earlier after Saudi Arabia’s output in March climbed to the second-highest level in at least 31 years before a European embargo on Iran that starts in July.

“With Saudi ramping up production to meet the need for oil once sanctions against Iran come into full effect, the oil market was pushed into surplus this year,” Greely said. “However, as Iranian supplies are increasingly shut out from the market as the sanctions take effect, that surplus is disappearing.”

Saudi Arabia increased daily crude output to 9.923 million barrels in March, according to the Joint Organization Data Initiative. That surpassed Russia, which pumped 9.92 million barrels a day, for the first time in six years. JODI is supervised by the Riyadh-based International Energy Forum and compiles data provided by member governments.

Iran Progress

Oil has also fallen this month amid speculation the U.S. and its allies will use strategic supplies to protect the global economy as they prepare for the EU ban on imports from Iran.

Negotiations about the Persian Gulf nation’s nuclear program have made “good progress,” Yukiya Amano, director general of the International Atomic Energy Agency, said yesterday before departing on a flight to Tehran. Amano will meet with the country’s top nuclear negotiator, Saeed Jalili.

Money managers cut net-long positions on New York crude by 6 percent to 139,182 contracts, the lowest since September 2010, in the seven days ended May 15, according to the Commodity Futures Trading Commission’s Commitments of Traders report on May 18.

Bets Reduced

In London, hedge funds and other money managers cut bullish bets on Brent crude by 6,148 contracts, or 5.9 percent, in the week ended May 15, according to data from ICE Futures Europe.

Long positions, or speculative bets that prices will increase, in futures and options combined, outnumbered short positions by 97,625 compared with 103,773 lots the previous week, the London-based exchange said today in its weekly Commitment of Traders report.

The average price for regular gasoline at U.S. filling stations fell 6.19 cents in the past two weeks to $3.7833 a gallon, according to Lundberg Survey Inc. The survey is based on information received from about 2,500 stations by the Camarillo, California-based company. The price is 12.41 cents lower than a year earlier, when the average was $3.9074. The highest average this year was $3.9671, during the two weeks ended April 6.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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