Oil Rises for Second Day as Service Industries Grow
Oil rose for a second day as a gauge of U.S. service-industry growth unexpectedly increased, reducing worries that a slowing economic recovery will cut oil demand.
Prices rebounded after the Institute for Supply Management’s index of non-manufacturing businesses advanced to 53.7 in May from April’s 53.5. Economists surveyed by Bloomberg forecast 53.4. Oil fell earlier as European data signaled the economic outlook is worsening during the region’s debt crisis.
“The ISM triumphed over the concerns about Europe,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The worst news seems to be out already. Now it’s time to wait for the recovery.”
Crude for July delivery gained 31 cents, or 0.4 percent, to settle at $84.29 a barrel on the New York Mercantile Exchange. Prices have fallen 15 percent this year.
Prices were little changed after industry-funded American Petroleum Institute said oil inventories fell 1.77 million barrels last week to 384.1 million. The July contract gained 26 cents, or 0.3 percent, to $84.24 a barrel in electronic trading. It was at $84.27 before the API released its report at 4:30 p.m.
Brent oil for July settlement slipped 1 cent to $98.84 a barrel on the London-based ICE Futures Europe exchange.
Estimates in the Bloomberg survey for the ISM index ranged from 52 to 55.1. The ISM services report covers industries from utilities and retailing to housing, health care and finance, about 90 percent of the economy. Readings above 50 signal expansion.
Oil also gained as stocks advanced and officials from the world’s leading economies agreed to coordinate their response to the European crisis. The Standard & Poor’s 500 Index rose 0.6 percent and the Dow Jones Industrial Average gained 0.2 percent.
Finance ministers and central bank governors from the Group of Seven industrialized nations said they will work together to help both Spain and Greece place their public finances on a sustainable footing, Japanese Finance Minister Jun Azumi told reporters in Tokyo following a conference call today.
The talks preceded a summit of leaders from the Group of 20 nations June 18 and 19 in Los Cabos, Mexico.
“It’s pretty clear that something needs to be done in Europe, and you have to believe that something will be done and the market’s verdict will be whether or not it’s sufficient,” said John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy.
Three of the G-7 countries -- Germany, France and Italy -- use the euro. The others are the U.S., U.K., Japan and Canada. The G-20 includes the G-7 advanced-economy nations along with major emerging markets such as Brazil, Russia, India and China.
The International Energy Agency estimated “big declines” in demand this year from industrialized nations in Europe and the U.S. in its monthly Oil Market Report on May 11. Demand from China and non-industrialized nations outside the Organization for Economic Cooperation and Development is forecast to boost global consumption by 0.9 percent this year from 2011.
Prices fell earlier after London-based Markit Economics said euro-area services and manufacturing output contracted at the fastest pace in almost three years in May.
Spain called for outside support for the first time to battle the debt crisis as Budget Minister Cristobal Montoro said European institutions should help shore up the nation’s lenders.
“The market remains sensitive to economic news, especially out of Europe,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Concerns that the worst of the crisis will spread from Spain and Portugal are pinning the market here.”
U.S. oil supplies dropped from a 22-year high as refineries increased gasoline output to meet peak summer consumption, a Bloomberg survey showed.
Stockpiles declined 500,000 barrels to 384.2 million last week, according to the median of 12 analyst estimates before an Energy Department report on June 6. It would be the first decrease in 11 weeks. Seven respondents forecast a fall and five an increase.
A decline in inventories may spur some short covering, or buying by traders who sold oil contracts when prices were falling, said Phil Streible, a Chicago-based commodities broker at RJO Futures. Futures settled at an eight-month low of $83.23 a barrel on June 1. Prices declined for 17 trading sessions in May, the most days in a single month since January 1997.
“The downside is limited now,” he said.
Electronic trading volume on the Nymex was 420,819 contracts as of 4:32 p.m. in New York. Volume totaled 580,789 contracts yesterday, 4.1 percent above the three-month average. Open interest was 1.45 million.
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