Oil Rises as U.S. Consumer Confidence Improves

Oil rose for a fourth day on reports as U.S. consumer confidence improved, signaling the economy is recovering, and rising tension in the Middle East.

Futures capped a third weekly gain as the Thomson Reuters/University of Michigan consumer sentiment index beat expectations and the Conference Board’s leading economic indicators climbed more than forecast. Prices also gained as Hezbollah threatened to retaliate if Israel attacked Iran and security concern grew in Syria and Lebanon.

“The economic data are getting better,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “You have a lot of tension ratcheting up in the Middle East and oil’s been having a rally.”

Oil for September delivery rose 41 cents, or 0.4 percent, to $96.01 a barrel on the New York Mercantile Exchange, the highest settlement since May 11. The price is up 9 percent in August and 13 percent in the third quarter.

Brent crude for October fell $1.56, or 1.3 percent, to settle at $113.71 a barrel on the London-based ICE Futures Europe exchange after reaching the highest level since May yesterday. Brent’s premium to October West Texas Intermediate, the New York benchmark, narrowed to $17.39 from $19.38.

“The trend for higher prices in Brent still remains in place because producers have to go through the maintenance season over the course of August and September,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “This is the slight retrenchment after a period of strong gain.”

Stronger Outlook

Futures in New York climbed as the Thomson Reuters/University of Michigan preliminary August index of consumer sentiment increased to 73.6, the highest level since May, from 72.3 the prior month. The gauge was projected to be little changed at 72.2, according to a Bloomberg survey.

The Conference Board’s gauge of the outlook for the next three to six months increased 0.4 percent last month after a revised 0.4 percent drop in June, the New York-based group said today. Economists projected the gauge would rise by 0.2 percent.

The Standard & Poor’s 500 Index extended its weekly gain to 0.9 percent. The index has gained for six weeks in a row.

“There is some upside momentum and what the market is trying to do is expand the trading range,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Equities being strong are kind of keeping oil higher.”

Mideast Tension

Tension in the Middle East rose as Hezbollah’s chief, Hassan Nasrallah, said Iran’s response to an attack by Israel would be “huge.” Hezbollah, a militant Islamist group close to Iran, is classified as a terrorist organization by the U.S.

The Tel Aviv-based Haaretz newspaper reported Aug. 10 that Israeli Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak are considering bombing Iran’s nuclear facilities before U.S. elections on Nov. 6.

“People are hesitant to be short with rhetoric in the Middle East heating up,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

The Security Council decided yesterday to let the mandate for its unarmed observer team in Syria expire, with operations scheduled to “fade out” beginning Aug. 19, French Ambassador to the UN Gerard Araud said. The decision marked the latest setback in UN efforts to broker a cease-fire and open talks between President Bashar al-Assad’s government and rebels.

Lebanon Warning

The U.S. Embassy in Lebanon has warned its citizens of “an increased possibility of attacks,” including kidnappings and the potential for an upsurge in violence.

The Middle East was responsible for 33 percent of global oil production last year and held 79 percent of proved reserves, according to BP Plc (BP/)’s Statistical Review of World Energy, released in June.

Oil may fall next week, a Bloomberg survey showed. Fifteen of 27 analysts, or 56 percent, forecast crude will decline through Aug. 24.

Electronic trading volume on the Nymex was 443,571 contracts as of 4:05 p.m. in New York. Volume totaled 521,076 contracts yesterday, 5.4 percent below the three-month average. Open interest was 1.49 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 at dstets@bloomberg.net

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