Oil Rises to Four-Month High as Home Prices Advance

Oil in New York rose to a four-month high after home prices in 20 U.S. cities climbed by the most in more than six years, signaling that the country’s economic rebound is accelerating.

Futures advanced 1.2 percent after the S&P/Case-Shiller index of property values increased 5.5 percent in November from the same month in 2011, the biggest year-over-year gain since August 2006. Prices also increased as Egypt’s defense chief warned that political unrest could bring about the “collapse” of the state.

“We’re pricing in a lot of economic optimism,” said Mike Wittner, head of oil-market research for the Americas at Societe Generale SA in New York. “The underlying macroeconomic picture looks solid and that’s good for demand.”

Crude oil for March delivery rose $1.13 to $97.57 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 14. Trading at 4:38 p.m. was 28 percent above the 100-day average for the time of day.

Prices were little changed after the American Petroleum Institute reported oil inventories increased 4.16 million barrels last week to 368.2 million. Oil was up 96 cents, or 1 percent, at $97.40 at 4:31 p.m. in electronic trading. The contract traded at $97.45 before the report was released.

Brent oil for March settlement increased 88 cents, or 0.8 percent, to end the session at $114.36 a barrel on the London- based ICE Futures Europe exchange. Trading was 8.5 percent above the 100-day average.

The European benchmark oil grade was at a premium of $16.79 to West Texas Intermediate oil traded in New York, down from $17.04 yesterday.

Home Prices

A 5.6 percent gain in home prices was projected, according to the median of 30 economists surveyed by Bloomberg. The index is based on a three-month average, which means the November data were influenced by transactions in October and September.

The U.S. property market is extending its recovery from the worst crash since the 1930s. The market is rebounding faster than anyone thought possible, Blackstone Group LP’s global head of real estate Jonathan Gray said this month, as the Federal Reserve buys mortgage bonds to keep rates near record lows and investors sop up a diminishing supply of properties for sale.

“Today’s housing news was good, and every day people seem to be getting more optimistic about the economy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Egyptian Protests

Protesters in the Suez Canal province of Port Said vowed a second night of defiance to a curfew. Violence increased amid a refusal by President Mohamed Mursi’s secular opponents to join in talks. The unrest has gained momentum since Jan. 25, the second anniversary of the start of the uprising that ousted Hosni Mubarak, leaving at least 50 people dead in the past week.

The conflict between the political forces “may lead to the collapse of the state,” Defense Minister Abdelfatah Al-Seesi was quoted as saying in a statement posted on the armed forces’ Facebook page.

Total oil flows through the Suez Canal reached 2.17 million barrels a day in 2011, according to the U.S. Energy Information Administration, the statistical arm of the Energy Department.

“Geopolitical worries are behind some of today’s rise in prices,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “If the Egyptian government were to fall, there would be threat to transit and an increase to generalized angst in the region.”

Global Optimism

Oil also gained on reports showing global economic optimism. German consumer confidence will rise next month, the Nuremberg-based market research company Gfk SE (GFK) said. South Korean manufacturers’ confidence increased this month, the Bank of Korea said.

The Standard & Poor’s 500 Index (SPX) and the Dow Jones Industrial Average advanced 0.5 percent.

“The oil market has been taking direction from equities,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania.

Federal Reserve policy makers start a two-day meeting today to discuss continuing asset purchases to boost growth. The bank is buying as much as $85 billion of securities each month, using the full force of its balance sheet to stoke the economy.

Prices eased briefly after a report showed that confidence among U.S. consumers declined in January, reaching the lowest level in more than a year.

“The disappointing consumer confidence report may give the Fed some cover to continue with the easing that’s lifting all markets,” Kilduff said.

Supply Forecasts

A report from the EIA tomorrow will probably show that U.S. crude inventories climbed 2.5 million barrels last week, according to the median of nine estimates from analysts in a Bloomberg survey.

Refineries probably operated at 83.25 percent of capacity last week, the lowest rate since March, the survey showed. Units are often idled for maintenance in the second half of January as attention shifts to gasoline and away from heating oil.

“There’s no fundamental factor that justifies this move higher but you don’t want to stand in the way of a market move like this,” Schork said. “Inventories are rising and should rise further in the weeks ahead as refineries ramp up their turnarounds.”

Electronic trading volume on the Nymex was 598,794 contracts as of 4:32 p.m. It totaled 393,687 contracts yesterday, 20 percent below the three-month average. Open interest was 1.53 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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