Oil Gains on Economic Optimism, Declining Fuel Stockpiles

Oil advanced for the third time in four days as U.S. inventories fell unexpectedly and fewer Americans filed applications for unemployment benefits.

Prices increased as stockpiles of crude and oil products dropped and jobless claims decreased by 41,000. Oil pared gains after Israel and Hamas agreed to a cease-fire, reducing concern that supplies would be disrupted.

“The inventory report is driving oil up,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Certainly the fundamentals are looking more bullish for oil. The cease-firing is taking some geopolitical premium off the table.”

Crude oil for January delivery gained 63 cents, or 0.7 percent, to settle at $87.38 a barrel on the New York Mercantile Exchange. The price is down 12 percent this year.

Brent for January delivery advanced $1.03, or 0.9 percent, to settle at $110.86 a barrel on the ICE Futures Europe exchange in London.

Oil inventories decreased for the first time in three weeks, down 1.47 million barrels to 374.5 million, the Energy Department said. The median estimate of 11 analysts surveyed by Bloomberg was a gain of 1 million.

Gasoline inventories fell 1.55 million barrels to 200.4 million. Distillate supplies, which include heating oil and diesel, dropped 2.68 million to 112.8 million, the lowest level in more than four years.

Report ‘Supportive’

“The report is supportive,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We have declines in each major category.”

The refinery utilization rate increased 1.5 percentage points to 87.5 percent and oil imports dropped 1.3 percent to 7.77 million barrels a day, the second-lowest level this year.

Gasoline demand rose 1.2 percent in the four weeks ended Nov. 16 to average 8.74 million barrels a day, the Energy Department report showed.

“Demand is rising and that’s a good sign,” Lynch said.

Oil output climbed by 1,000 barrels a day to 6.71 million, the most since May 20, 1994. Production has increased for 11 weeks, the longest stretch of gains since at least 1990.

U.S. jobless claims fell to 410,000 in the week ended Nov. 17 as damage to the labor market caused by Hurricane Sandy began to subside, the Labor Department reported. The number of applications matched the median forecast of 48 economists surveyed by Bloomberg.

Rising Optimism

Oil also rose on signs of rising economic optimism. The Conference Board’s gauge of the outlook for the next three to six months increased 0.2 percent after a revised 0.5 percent gain in September, the New York-based group said today. Economists projected the October gauge would climb 0.1 percent, according to the median estimate in a Bloomberg survey.

The Bloomberg monthly consumer expectations index rose to 4 in November from minus 7. The share of households in the Bloomberg survey projecting the economy will get better rose to 37 percent, the highest since March 2002.

“The U.S. economy is getting a little better,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Geopolitical headlines are definitely the market movers here.”

Oil dropped as much as 0.4 percent earlier as the truce accord officially came into effect at 9 p.m. local time today after Egyptian Foreign Minister Mohamed Amr and Secretary of State Hillary Clinton announced it earlier at a news conference in Cairo.

‘Very Sensitive’

“Every time you hear something about a peace agreement, the market will fall,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The oil market is very sensitive to the Middle East.”

The conflict has threatened further instability in the Middle East and North Africa, regions accounting for more than 35 percent of global crude production, according to BP Plc (BP/)’s Statistical Review of World Energy.

“There are concerns about oil supply, but the odds of a wider dispute and the odds of an oil supply disruption are relatively low,” Evans said.

Electronic trading volume on the Nymex was 360,370 contracts as of 3:31 p.m. Volume totaled 607,214 contracts yesterday, 14 percent higher than the three-month average. Open interest was 1.5 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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