Oil Rises as U.S. Manufacturing Unexpectedly Expands

Oil advanced to a one-week high as U.S. manufacturing unexpectedly expanded and Spanish banks’ capital deficit dropped in September from June.

Futures rose 0.3 percent as the Institute for Supply Management’s U.S. factory index increased to 51.5 in September from 49.6 a month earlier, exceeding the median forecast in a Bloomberg survey. Spain’s banks have a capital deficit of 59.3 billion euros ($76.3 billion), a report commissioned by the government showed, less than the 62 billion estimated in June.

“The ISM came in better than expected, which is certainly helping the market,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “It wasn’t huge, but it was above 50, which signals growth.”

Crude oil for November delivery rose 29 cents to $92.48 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 21. Prices, which are down 6.4 percent this year, increased 8.5 percent in the third quarter.

Futures retreated from the intraday high of $93.33 as Brent oil fell in London and gasoline futures in New York tumbled as much as 1.1 percent.

Brent for November settlement decreased 20 cents to end the session at $112.19 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate crude traded in New York was at $19.71, down from a six-week closing high of $20.20 on Sept. 28.

Gasoline was steady as Brent, which reflects the price of imported crudes used to make fuels on the East Coast, narrowed its premium to WTI. November gasoline was unchanged at $2.9201 a gallon on the Nymex. The scarcity of supply in New York Harbor pushed the October contract up 19.77 cents, or 6.3 percent, on Sept. 28, the day the contract expired.

Correlated Markets

“There are probably a lot of traders who think last week’s rally was overdone and the squeeze in October futures left futures overvalued,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Brent and gasoline are heavily correlated. It really doesn’t matter if it’s Brent that’s dictating the direction or the other way around.”

The ISM report showed the first growth after three months of contraction. Measures above 50 represent expansion. Economists in a Bloomberg survey projected the Tempe, Arizona- based ISM would report a reading of 49.7, according to the median of 76 forecasts.

The euro advanced much as 0.6 percent against the dollar to $1.2939. A stronger euro and weaker U.S. currency increase the appeal of dollar-denominated raw materials as an investment. The Standard & Poor’s GSCI Index of 24 commodities rose 0.2 percent. The S&P 500 Index (SPX) advanced 0.6 percent.

Debt Crisis

“It looks like the European debt crisis is coming closer to an end,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The commodities, and especially oil, are taking their cue from the currency market.”

Spain’s banks capital deficit shrank by 2.7 billion euros in September from a June estimate, stress tests conducted by New York-based management consultancy Oliver Wyman showed Sept. 28. The tests of 14 lenders were designed to lift doubts about the financial industry’s ability to absorb losses. The tests are part of the terms for Spain to win a European bailout of as much as 100 billion euros of losses linked to souring real estate.

Europe’s debt crisis has reduced economic growth and the continent’s energy consumption for three years. The crisis that began in Greece has spread to Ireland, Portugal, Italy, Spain and Cyprus.

The U.S. and European Union used 32.3 million barrels a day of oil in 2011, or 37 percent of the world’s total, according to BP Plc (BP/)’s Statistical Review of World Energy.

$120 Brent

Bank of America Corp. (BAC) said that Brent crude may advance to $120 a barrel by the end of the year and raised its fourth- quarter forecast for the oil benchmark by $6, citing stronger prospects for the global economy.

Risks to world growth have been eased by stimulus measures taken by central banks, analysts including Francisco Blanch in New York and Sabine Schels in London said in a report. Bank of America bolstered its fourth-quarter estimate for the grade to $114 a barrel from $108.

Electronic trading volume on the Nymex was 342,515 contracts as of 3:08 p.m. Volume totaled 360,459 contracts Sept. 28, the lowest level since May 25 and 32 percent below the three-month average. Open interest was 1.55 million.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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