Oil climbed above $95 a barrel for the first time in three months as U.S. building permits reached a four-year high and equities advanced, adding to optimism that faster economic growth will boost demand.
Prices gained for a third day after the Commerce Department reported the permits increased to an 812,000 annual pace in July, the most since August 2008. The Standard & Poor’s 500 Index rose to the highest level since April.
“Evidence is accumulating that the housing market has bottomed out and is on the way up,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “That would be such a huge gain for the U.S. economy and it’s going to be bullish for the oil market.”
Oil for September delivery increased $1.27, or 1.3 percent, to settle at $95.60 a barrel on the New York Mercantile Exchange. The price reached $95.75, the highest intraday level since May 14.
Brent crude for September settlement gained 65 cents, or 0.6 percent, to $116.90 on the London-based ICE Futures Europe exchange. The contract expired today. The more actively traded October contract rose 96 cents, or 0.8 percent, to $115.27.
Brent’s premium to New York oil fell to $21.30 from yesterday’s $21.92, the most since October.
July’s housing permits, a proxy for future construction, beat the 769,000 pace forecast by economists surveyed by Bloomberg. The Commerce Department data also showed housing starts fell 1.1 percent to a 746,000 annual rate from June’s 754,000 pace.
Construction company leaders are turning less pessimistic. The National Association of Home Builders/Wells Fargo index of builder confidence climbed in August to the highest level in more than five years, the Washington-based group said yesterday.
The Standard & Poor’s 500 Index climbed as much as 0.7 percent to the highest intraday level since April 3. The S&P’s GSCI Index of 24 commodities also rose.
The 120-day correlation of the daily changes of the S&P index and Nymex oil futures rose to 66.7 percent, the strongest level since it reached 67 percent in July 2010, according to data compiled by Bloomberg.
“Every fund manager looks for correlation, and we cannot deny that there is a strong correlation between oil and the equity market,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “Both markets are reaching highs together.”
Oil also gained as the euro strengthened as much as 0.7 percent against the dollar to $1.2373 as German Chancellor Angela Merkel reiterated her commitment to working with the European Central Bank to resolve the region’s financial turmoil.
A stronger euro and weaker dollar increase oil’s appeal as an investment alternative.
Crude has advanced 2.9 percent this week on declining inventories and rising demand. Stockpiles dropped 3.7 million barrels last week and oil use reached a nine-month high, the Energy Department said.
“The fundamental data was bullish,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. “All of this stuff and the housing number together are creating a positive outlook for investors.”
Oil has increased 8.6 percent in August, helped by concern that Middle East tension will disrupt supplies from a region that produces 33 percent of global output. Michael Oren, Israel’s U.S. ambassador, said yesterday at a Bloomberg Government breakfast in Washington that his country would strike to delay Iran’s ability to make nuclear weapons for a few years.
“Those types of statements from the ambassador have the potential to impact oil prices significantly on any given day,” Barber said.
Israeli President Shimon Peres called for the U.S. to work together to solve the Iran nuclear crisis. Peres said in an interview broadcast on Channel 2 television today that he doubted Israel would launch a strike at Iran’s nuclear program before the U.S. presidential election in November.
The Middle East held 79 percent of proved reserves as of last year, according to BP Plc (BP/)’s Statistical Review of World Energy, released in June. Iran produced 2.8 million barrels a day in July, U.S. Energy Department data show,
Electronic trading volume on the Nymex was 462,452 contracts as of 3:07 p.m. in New York. Volume totaled 746,813 contracts yesterday, the most since June 29. Open interest was 1.5 million, the most since May 17.
To contact the editors responsible for this story: Dan Stets at email@example.com