Oil Trades Near Three-Day High on Supplies, China Manufacturing

Oil traded near the highest level in three days in New York on signs that China’s manufacturing will expand and as stockpiles unexpectedly fell in the U.S., the world’s biggest crude user.

Futures were little changed after climbing 0.7 percent yesterday. A preliminary reading for China’s purchasing managers’ index was 50.4, indicating the first expansion in 13 months. U.S. crude inventories dropped 1.47 million barrels last week, according to the Energy Department. Supplies were forecast to increase by 1 million barrels, according to a Bloomberg News survey of analysts.

“China has been providing good fundamentals, and if the economy moves to a higher level, they need oil,” said Tetsu Emori, a chief fund manager at Astmax Investment Management Inc. in Tokyo. “Downside risk is quite limited, and we’re looking for oil to reach $110 by the end of the year.”

Crude for January delivery was at $87.60 a barrel, up 22 cents, in electronic trading on the New York Mercantile Exchange at 3:50 p.m. Singapore time. The contract climbed 63 cents yesterday to $87.38, the highest close since Nov. 19. Prices are down 11 percent this year.

Brent oil for January settlement slid 21 cents to $110.65 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude was at a premium of $23.05 to New York- traded West Texas Intermediate grade. The spread widened for a third day yesterday to $23.48.

China Economy

The Chinese manufacturing index for November from HSBC Holdings Plc and Markit Economics was up from a final level of 49.5 for October. A reading above 50 indicates expansion. The economy in China, the second-largest oil consumer, slowed last quarter to the weakest pace in more than three years.

U.S. crude stockpiles declined to 374.5 million barrels in the week ended Nov. 16 as imports slowed and refiners boosted processing, according to the Energy Department data.

The first inventory drop in three weeks was “a surprise decline,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. (ANZ) in Melbourne, said in a note.

Gasoline inventories fell 1.55 million barrels, compared with a median 1 million-barrel increase predicted by analysts in the Bloomberg survey. Distillate supplies, including heating oil and diesel, were down 2.68 million barrels, more than a projected 1 million-barrel decrease. Stockpiles were at 112.8 million barrels, the lowest since May 2008.

Gaza Conflict

Oil’s advance in New York may stall around $89.50 a barrel, along the top of a downward-sloping trend channel on the daily chart, according to data compiled by Bloomberg. Futures halted a rally this week in this channel, which goes back about two months. Sell orders tend to be clustered near technical- resistance levels.

Crude pared gains yesterday after Israel and the Palestinian group Hamas agreed to a cease-fire that started at 9 p.m. local time, following talks brokered by Egypt’s Islamist leaders and the U.S. More than a week of air strikes and missile attacks have left at least 150 people dead in Gaza and killed five Israelis, according to officials.

“Given the supply risks from the Middle East, I don’t really think prices will be going down further,” said Emori at Astmax, who predicts Brent crude will trade around $120 to $125 a barrel by the end of the year.

The conflict in Gaza threatens further instability in the Middle East and North Africa after a wave of uprisings that started last year, including one that almost entirely halted crude exports from Libya. Israeli leaders have said that all options, including a military strike, are justified in countering what they describe as an existential threat from Iran, the fifth-largest oil producer in the Organization of Petroleum Exporting Countries.

To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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