Oil Caps Weekly Gain on U.S., Chinese Manufacturing

Oil capped its fifth weekly gain since Nov. 2 as manufacturing grew in the U.S. and China, the world’s two biggest crude-consuming countries.

Futures rose 0.9 percent as industrial output in the U.S. rose by the most in two years in November, the Federal Reserve reported. A preliminary purchasing managers’ index showed China’s manufacturing is expanding at a faster pace this month.

“Recent U.S. data are suggesting that the U.S. is finally out of recession and that should be very bullish for oil demand,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The manufacturing number revives hopes that we’ll see China become one of the biggest components of demand growth next year.”

West Texas Intermediate crude for January delivery advanced 84 cents, or 1 percent, to settle at $86.73 a barrel on the New York Mercantile Exchange. Prices rose 0.9 percent since Dec. 7, capping the fifth weekly gain since Nov. 2.

Brent for January settlement, which expired today, rose $1.24, or 1.1 percent, to $109.15 a barrel on the London-based ICE Futures Europe exchange. The more actively traded February contract gained $1.72 to $108.18. The European benchmark grade was at a premium of $22.42 to WTI.

The Brent-WTI spread widened after BP Plc (BP/) delayed until at least June the conversion of the biggest crude unit at its Whiting, Indiana, refinery to process heavy crude.

WTI-Brent Spread

WTI has declined 12 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, Oklahoma, America’s biggest storage hub and the delivery point for New York futures. That has left it at an average $17.37 below Brent this year, compared with a premium of about 95 cents in the 10 years through 2010. Brent, the benchmark grade for more than half the world’s crude, has risen 1.6 percent this year.

Output at U.S. factories, mines and utilities increased 1.1 percent last month after a revised 0.7 percent drop in October that was more than initially estimated, the Fed reported. Economists forecast a 0.3 percent advance, according to the Bloomberg survey median. Manufacturing, which is a part of production, also surged 1.1 percent in November, the most this year.

“Industrial production is better than expected and that’s helping the market a little bit,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “We have come down to the lower end of the fair-value range.”

A Labor Department report yesterday showed first-time claims for unemployment insurance declined to a nine-week low in the week ended Dec. 8.

Chinese Economy

In China, a preliminary purchasing managers’ index by HSBC Holdings Plc and Markit Economics indicated a reading of 50.9, for December, higher than a median estimate of 50.8 in a Bloomberg survey. It followed a reading of 50.5 in November, which was above the expansion-contraction dividing line of 50 and was the first growth in 13 months.

“The market is digesting the fact that economic data have been a little bit better,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “There is a lot of optimism about China.”

China will consume 9.9 million barrels a day of oil, 115,000 more than previously projected, in the final three months of this year, the International Energy Agency said in its Dec. 12 monthly report.

Oil also rose as the euro strengthened against the dollar after European Union chiefs pledged to seek a joint strategy for handling failing banks. The euro gained as much as 0.7 percent to $1.3173, the highest level since May. A stronger euro and weaker dollar raise dollar-denominated oil’s appeal as an investment alternative.

Budget Talks

Investors also watched the budget debate in Washington as President Barack Obama and Republican House Speaker John Boehner remained deadlocked in the negotiations. The two met for a third time at the White House yesterday to discuss averting more than $600 billion in spending cuts and tax increases before a year- end deadline.

The budget talks “remain restraining factors,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York, in an e-mail.

Electronic trading volume on the Nymex was 641,067 contracts as of 3:17 p.m. Volume totaled 494,132 contracts yesterday, 5.3 percent lower than the three-month average. Open interest was 1.55 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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