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Oil Caps Biggest Quartely Gain This Year

Oil capped the biggest quarterly increase this year on concern that escalating Middle East tension will disrupt supplies and as gasoline surged to a five- month high.

Crude gained 0.4 percent as the White House said President Barack Obama and Israeli Prime Minister Benjamin Netanyahu are in “full agreement” on preventing Iran from getting a nuclear weapon. Gasoline rose on worries supplies are tightening. Prices rebounded after falling more than $10 to $89.98 on Sept. 26 from an intraday high above $100 on Sept. 14.

“There is concern about the increasing tension in the Middle East,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “There is a squeeze play on gasoline and it’s leading the way. You had a major correction, $10 at a short period of time, and it’s time to rebound.”

Crude for November delivery gained 34 cents, or 0.4 percent, to settle at $92.19 a barrel on the New York Mercantile Exchange. Futures dropped 0.8 percent this week and 4.4 percent this month. Prices climbed 8.5 percent in the third quarter, the most since the three months ended Dec. 30.

Brent oil for November settlement advanced 38 cents, or 0.3 percent, to $112.39 a barrel on the London-based ICE Futures Europe exchange.

“There does seem to be some support around $90,” said Chris Barber, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts. “We are likely getting to the bottom.”

Security Commitment

Obama told Netanyahu in a 20-minute phone conversation today that the U.S. is committed to Israel’s security, according to a White House statement. It followed weeks of tension between the leaders over how aggressively to confront Iran’s nuclear development program.

In an address to the United Nations yesterday,Netanyahu used a drawing of a cartoonish, short-fused bomb to challenge the international community to shut down Iran’s nuclear program.

“The geopolitical risk is out there,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “The market is hypersensitive to anything coming out of the Middle East.”

Countries in the Middle East and North Africa produced 36 percent of the world’s oil and held 52 percent of proven reserves in 2011, according to BP Plc (BP/)’s Statistical Review of World Energy.

Gasoline Climbs

Gasoline for October delivery surged 6.3 percent to $3.342 a gallon on the Nymex, the highest settlement since April 13, as refineries in Canada, Wales and the Netherlands that supply the U.S. East Coast reduced fuel production.

The October contract expired at the close of floor trading today. The more-active November futures increased 2.29 cents, or 0.8 percent, to $2.9201 a gallon.

Gasoline inventories in the region, which includes New York Harbor, the delivery point for futures contracts, fell to 46.8 million barrels in the week ended Sept. 21, the least since October 2008, Energy Department data show.

Oil and gasoline also advanced as U.S. stocks pared losses. Financial shares reversed declines after stress tests on Spanish banks revealed a smaller capital shortfall than some had speculated.

“Gasoline is very strong and it has to do with what’s going on in the physical market,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We’ve been led by the equity market.”

Economic Growth

The Standard & Poor’s 500 Index slid 0.5 percent at 3:42 p.m. in New York after falling as much as 0.8 percent. It was poised for its worst week since June after a report showed U.S. business activity unexpectedly contracted in September.

Oil fell earlier on concern that slower economic growth will reduce demand and as Abdalla El-Badri, the Organization of Petroleum Exporting Countries’ secretary-general, said supplies are ample.

The Institute for Supply Management-Chicago Inc. said today its business barometer shrank for the first time in three years. Consumer spending stalled in August, the Commerce Department reported today in Washington. Purchases rose 0.1 percent after adjusting for inflation, following a 0.4 percent gain in July.

“The broader macroeconomic outlook is weak, and there is a direct correlation between economic growth and oil demand,” Barber said. “I don’t think there is any shortage of oil and the market is sufficiently supplied.”

OPEC Output

OPEC oil production was 32 million barrels a day in September, near a four-year high, according to data compiled by Bloomberg. The group’s spare production capacity climbed 11 percent this month to 5.531 million barrels a day, the highest level since October, according to Bloomberg data.

OPEC’s spare capacity “remains at relatively comfortable levels and total commercial stock levels are healthy,” El-Badri said today at a speech in Berlin. “The market is currently well supplied. We see no shortages.”

Oil may decline next week on economic worries, according to a Bloomberg survey. Thirteen of 28 analysts, or 46 percent, forecast crude will decrease through Oct. 5. Ten respondents, or 36 percent, predicted that futures will gain and five said there will be little change in prices.

Electronic trading volume on the Nymex was 316,367 contracts as of 3:43 p.m. in New York Volume totaled 439,391 contracts yesterday, 17 percent below the three-month average. Open interest was 1.56 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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