Oil Near 3-Month High Amid Speculation of China Stimulus

Oil traded near a three-month high in New York as speculation that China will take more steps to boost economic growth offset signs of weakening demand in the U.S.

Futures advanced as much as 0.8 percent. Growth in China’s industrial production slowed while inflation cooled for a fourth straight month in July, providing more room for policies to stimulate the economy of the world’s second-biggest oil consumer. U.S. petroleum consumption fell 1.1 percent last week, the first drop in four weeks, the Energy Department said yesterday. OPEC trimmed its forecast for demand for its crude and said Iraq’s output surpassed 3 million barrels a day for the first time since 2002.

“The market is in a mode where all that matters is the prospect of central bank monetary stimulus,” said Guy Wolf, a strategist at Marex Spectron Group Ltd., a London-based commodities brokerage, which predicts Brent crude will be capped at $120 a barrel. “So soft growth data, without inflationary pressure, is a green light for central banks. Further stimulus in China is almost a certainty.”

Oil for September delivery was at $93.79 a barrel, up 44 cents, or 0.5 percent, in electronic trading on the New York Mercantile Exchange at 1:35 p.m. London time. Prices climbed to $94.72 yesterday, the highest since May 15. The contract is up 21 percent from its lowest close this year of $77.69 on June 28.

Brent crude for September settlement rose 30 cents to $112.44 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to West Texas Intermediate was at $18.77, down from $18.79 yesterday.

China Inflation

Iraq’s crude output rose to more than 3 million barrels a day last month for the first time since the 2003 U.S.-led invasion that toppled Saddam Hussein, according to the Organization of Petroleum Exporting Countries. Iraq pumped 3.08 million barrels a day in July, 115,000 barrels more than the previous month, OPEC’s Vienna-based secretariat said today in its Monthly Oil Market Report.

OPEC said its 12 members will need to supply 29.5 million barrels of crude a day in 2013, or 100,000 a day less than last month’s estimate.

China’s consumer prices rose 1.8 percent from a year earlier, the National Bureau of Statistics said today. That compares with the 1.7 percent median forecast in a Bloomberg News survey of 33 economists and a 2.2 percent gain in June.

The deceleration in price gains may encourage policy makers to introduce more measures to support growth, aiding efforts to reverse a slowdown that’s lasted six quarters.

Paring Rates

“A rate cut or further liberalization of lending in deposit markets, or a cut in reserve requirements for banks could be a positive contributor to the energy complex,” said Michael McCarthy, a chief market strategist at CMC Markets in Sydney. “The case is very strong” for stimulus, he said.

China’s industrial output rose 9.2 percent in July from a year earlier, the National Bureau of Statistics said. The growth compares with the 9.7 percent median estimate in a Bloomberg News survey of 32 analysts.

U.S. crude stockpiles fell 3.7 million barrels last week, the Energy Department said. They were forecast to decline 1.6 million barrels, according to the median estimate of 10 analysts in a Bloomberg News survey.

“Demand has softened in the U.S.,” said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity- markets newsletter in Sydney, who predicts New York oil faces technical resistance at $94.50 a barrel. “Prices have had a very good run.”

Fewer Products

Total products supplied, a measure of fuel consumption, dropped 204,000 barrels a day to 18.9 million last week, the first decline since the week ended July 6, according to the Energy Department report.

Speculation that nations are stockpiling oil at the fastest rate in 14 years is fanning expectations for Brent crude to drop below $100 a barrel.

OPEC pumped 2.1 million barrels a day more than projected demand in April through June, the biggest overproduction for any quarter since 1998, the International Energy Agency estimates. The increase was little noticed as traders focus on U.S.-led sanctions curbing Iran’s oil exports, Citigroup Inc. said. Brent will fall to $93 by September and $83 by year-end, according to the Centre for Global Energy Studies, a London-based consultant.

Tropical Storm Ernesto, rumbling westward in the southern part of the Bay of Campeche, is crossing Mexico’s oil-production hub and will go ashore “shortly,” according to the National Hurricane Center.

Ernesto, with heavy rain and winds of 70 miles (113 kilometers) per hour, was 40 miles east-northeast of Coatzacoalcos and traveling west at 13 mph, the Miami-based center said in an advisory at 8 a.m. East Coast time.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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

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