Oil Trades Near Four-Month High on Signs of Improving Economy

Oil traded near a four-month high before reports that may show economic growth in the U.S., the world’s biggest crude user, is gaining strength.

Futures were little changed in New York after surging as high as $100.42 a barrel on Sept. 14 as the Federal Reserve pledged to start buying U.S. mortgage securities in a third round of quantitative easing. New home construction and sales of previously owned houses rose in August, economists said before U.S. data due Sept. 19. Current crude prices aren’t a threat to the world economy, Mohammad Ali Khatibi, Iran’s governor to OPEC, was cited as saying on the Oil Ministry’s news website.

“The recovery in the U.S. was already in progress but will be accelerated by QE3,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts Brent crude will advance to $120 a barrel this month.

Oil for October delivery was at $98.71 a barrel, down 29 cents, in electronic trading on the New York Mercantile Exchange at 12:46 p.m. London time. The contract rose 0.7 percent to close at $99 on Sept. 14, the highest since May 3. Prices are little changed this year.

Brent for November settlement fell 41 cents to $116.24 a barrel on the London-based ICE Futures Europe exchange. The front-month premium for the European benchmark contract to West Texas Intermediate was at $17.22 a barrel, little changed from $17.33.

Bullish Bets

Hedge funds raised bullish bets on oil to a four-month high before futures surged on the Fed’s plan to buy $40 billion a month in mortgage bonds in an effort to accelerate the U.S. recovery.

Money managers increased net-long positions, or wagers on rising prices, by 5 percent in the seven days ended Sept. 11, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Sept. 14. They were at the highest level since the week ended May 1.

In London, hedge funds and other money managers raised bullish bets on Brent crude to their highest in more than four months in the week ended Sept. 11, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 115,478 lots, the London-based exchange said today in its weekly Commitment of Traders report. That’s up 5,003 from last week and the highest since May 1, the data showed.

Housing Starts

U.S. housing starts in August increased to an annual rate of 765,000, the fastest in almost four years, from 746,000 in July, according to the median forecast in a Bloomberg survey before the Commerce Department report. Existing-home purchases advanced to a three-month high, economists said before data from the National Association of Realtors.

“We’ve seen an ongoing and relatively positive reaction to the Fed’s easing plan,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “That reflects the relatively open-ended nature of the proposed easing.”

Most oil-consuming nations consider prices at $100 a barrel to be “fair,” Khatibi said in a report published by the Shana website yesterday. Iran, the third-largest producer in the Organization of Petroleum Exporting Countries, is grappling with international sanctions imposed by Western countries that allege the nation is building nuclear weapons.

Iranian Oil Minister Rostam Qasemi said current crude prices are low and should exceed $150 a barrel to reflect actual market conditions, state-run Press TV reported.

Prices Climb

“In the winter, oil prices always climb,” he said, according to a report late yesterday. “This year, too, it would be natural to see oil prices rise.”

South Korea stopped buying crude from Iran in August after its refiners lost insurance coverage on ships carrying supplies from the Persian Gulf nation.

The tanker Freedom, owned by Tehran-based NITC, signaled it’s going to Ulsan in South Korea, IHS Inc. (IHS) ship-tracking data compiled by Bloomberg today show. The vessel, able to carry about 2 million barrels of crude, is scheduled to arrive Oct. 4.

Purchases fell to zero last month, reducing imports from Iran for the first eight months of this year by 34 percent from a year earlier to 5.39 million metric tons, according to data posted on the Customs Service’s website Sept. 15. South Korea bought 1.14 million tons of crude oil, or about 270,000 barrels a day, in August 2011.

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 on sev@bloomberg.net

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