Oil Rises for Third Day on China Speculation, Rising Equities

Oil rose for a third day, the longest winning streak in a month, as slowing growth in China fueled stimulus speculation and U.S. equities advanced.

Crude gained 1.2 percent as China’s growth declined to the weakest pace in three years, putting pressure on the government to act. U.S. stocks rose, with the Standard & Poor’s 500 Index gaining for the first time in seven days.

“Increasingly there is a feel that we’ll see some stimulus plans from places like China and you’ll see stronger economic growth in the second half and stronger oil demand,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We are back on a bullish trend along with equities.”

Crude for August delivery added $1.02 to settle at $87.10 a barrel on the New York Mercantile Exchange, capping a weekly gain of 3.1 percent. Prices are down 12 percent this year.

Brent oil for August settlement gained $1.33, or 1.3 percent, to $102.40 a barrel on the London-based ICE Futures Europe exchange.

China’s economic expansion slowed for a sixth quarter, growing at 7.6 percent in the second quarter, data from the National Bureau of Statistics showed today. That compares with an 8.1 percent gain in the previous period and the 7.7 percent median forecast of economists. Industrial production increased at a slower pace in June while retail sales growth decelerated.

Interest Rate

The People’s Bank of China on July 5 announced the second interest-rate cut in a month, adding to the first since 2008. Premier Wen Jiabao pledged to intensify fine-tuning of policies, according to a July 8 report by the official Xinhua News Agency.

China is the world’s second-biggest oil consumer after the U.S., using 9.76 million barrels a day in 2011, according to BP Statistical Review of World Energy.

U.S. stocks rallied as JPMorgan Chase & Co. surged after reporting earnings. The S&P 500 (SPX) gained as much as 1.7 percent. The S&P’s GSCI Index of 24 commodities increased 1.2 percent.

Oil also advanced as the U.S. announced more sanctions on Iran. Yesterday the Obama administration sanctioned the National Iranian Tanker Co. and four alleged front companies for Iran’s oil trade, the latest salvo in a U.S.-led campaign to curtail Iran’s petroleum sales until it abandons illicit aspects of its disputed nuclear program.

Freezing Assets

The U.S. Treasury Department announced it would freeze American assets belonging to the tanker operator, known as NITC, and block the company’s transactions from the U.S. financial system. The Treasury identified 27 entities affiliated with the tanker company and 58 vessels -- some of which have been reflagged in other countries to evade international sanctions on Iran’s petroleum sales.

“The U.S. is tightening sanctions with Iran, and that is the whole basis for this rally,” said Phil Streible, a Chicago- based commodities broker at RJO Futures.

Oil also gained as the euro strengthened against the dollar as Italian borrowing costs fell at an auction. The euro rose as much as 0.4 percent to $1.2257. A stronger euro and weaker dollar boost oil’s appeal as an investment alternative.

Italy sold 3.5 billion euros ($4.3 billion) of new three- year bonds, matching a maximum target, and later sold 1.75 billion euros of three longer-dated securities. The auction came hours after Moody’s Investors Service downgraded the country’s bond rating by two levels to Baa2 from A3 and reiterated its negative outlook.

‘More Easing’

“The market was higher on the idea that we are going to see more easing coming out of China,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “You also had a little bit of positive sentiment from the well- received Italian bond auctions.”

Oil may fall next week on concern that weaker economic growth will reduce fuel demand, a Bloomberg survey showed. Fourteen of 34 analysts and traders, or 41 percent, forecast crude will drop through July 20. Twelve respondents, or 35 percent, predicted futures will rise and eight said there will be little change.

Electronic trading volume on the Nymex was 427,785 contracts as of 3:04 p.m. in New York. Volume totaled 467,055 contracts yesterday, 17 percent below the three-month average. Open interest was 1.43 million.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets in New York at dstets@bloomberg.net.

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