Oil Heads for Weekly Gain on China, U.S. Manufacturing Outlook

Oil rose in New York, extending a weekly gain, as a report signaled manufacturing may expand at a faster pace this month in China, the world’s second-biggest crude consumer.

Futures advanced as much as 0.8 percent and headed for the fifth weekly increase in six. A preliminary purchasing managers’ index for China by HSBC Holdings Plc and Markit Economics showed a reading of 50.9, higher than the 50.8 median estimate in a Bloomberg survey. A number above 50 indicates an expansion. U.S. industrial production probably grew 0.3 percent in November, according to a separate Bloomberg survey before Federal Reserve data today.

“The latest PMI, slightly ahead of the market expectation, suggests that China is maintaining the economic recovery momentum,” said Gordon Kwan, the head of regional energy research for Mirae Assets Securities Ltd. in Hong Kong who predicts West Texas Intermediate crude will average $95 a barrel next year. “Improved economic headlines from China will provide firm support to oil prices in 2013.”

Crude for January delivery climbed as much as 71 cents to $86.60 a barrel in electronic trading on the New York Mercantile Exchange and was at $86.57 at 1:33 p.m. Singapore time. The contract fell 88 cents to $85.89 yesterday. Prices are up 0.7 percent this week and down 12 percent this year.

Brent for January settlement, which expires today, rose 49 cents to $108.40 a barrel on the London-based ICE Futures Europe exchange. The more actively traded February contract was up 54 cents at $106.99. The European benchmark contract was at a premium of $21.81 to New York-traded WTI. Front-month prices have gained 0.8 percent in 2012.

China Demand

Oil in New York has technical support along an upward- sloping trend line on the daily chart, around $85.88 a barrel today, according to data compiled by Bloomberg. Futures yesterday halted their decline after reaching this line, which connects the intraday lows of June and November. Buy orders tend to be clustered near chart support while losses may accelerate with a sustained drop below it.

The December purchasing managers index by HSBC and Markit follows a reading of 50.5 in November, which was the first expansion in 13 months. China will consume 9.9 million barrels a day of oil, 115,000 more than earlier projected, in the final three months of this year, the International Energy Agency said in its Dec. 14 monthly market report.

The nation’s net crude imports rose to the highest level in six months in November and its refineries processed more than 10 million barrels a day of oil for the first time, government data showed this week.

Fiscal Cliff

Oil may drop next week in New York after the White House and congressional officials said no progress had been made on federal budget talks, according to a Bloomberg survey. Twelve of 31 analysts and traders, or 39 percent, forecast crude will decrease through Dec. 21. Eight respondents, or 26 percent, predicted a gain.

WTI fell 1 percent yesterday as Democratic and Republican lawmakers expressed renewed pessimism about the prospect of reaching a deal before more than $600 billion in tax increases and spending cuts known as the fiscal cliff start in January.

To contact the reporter on this story: Ramsey Al-Rikabi in Singapore at ralrikabi@bloomberg.net

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

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