Crude Rises to 14-Month High as U.S. Equities Rally

West Texas Intermediate crude advanced to a 14-month high as U.S. equities rose amid optimism about the economy and as analysts estimated that U.S. oil inventories fell last week.

Prices gained 0.4 percent. The Standard & Poor’s 500 Index rose for a fourth day. Crude supplies probably dropped to a four-month low, according to a Bloomberg survey before a government report tomorrow. Egypt appointed former Finance Minister Hazem El-Beblawi as interim premier to lead a government that will have to oversee elections following Mohamed Mursi’s ouster. Crude moved normally through the Suez Canal.

“Equities are giving the market a little bit of a boost,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We are looking for another draw in inventories. People don’t want to be short ahead of the report.”

WTI for August delivery rose 39 cents to $103.53 a barrel on the New York Mercantile Exchange, the highest settlement since May 2, 2012. The volume of all futures traded was 37 percent above the 100-day average for the time of day at 5:14 p.m. in New York.

Prices increased to a new 14-month high in electronic trading after the American Petroleum Institute was said to report that crude inventories dropped 9 million barrels last week, according a person familiar with the report. The industry-funded API began releasing its weekly supply statistics on a subscription basis with today’s numbers.

API Report

Gasoline stocks dropped 3.5 million barrels, according to the person, who asked to not be identified because the report was not publicly distributed.

Crude jumped $1.38, or 1.3 percent, to $104.52 a barrel at 5:14 p.m. It traded at $104.05 before the report was released at 4:30 p.m. and surged as high as $104.76 after the report.

Brent for August settlement increased 38 cents, or 0.4 percent, to end the session at $107.81 a barrel on the London-based ICE Futures Europe exchange. Volume was 3.7 percent above the 100-day average. Brent’s premium to WTI shrank 1 cent to $4.28, the narrowest settlement level since January 2011.

The U.S. boosted its 2013 price forecasts for both WTI and Brent today in the Energy Information Administration’s monthly Short-Term Energy Outlook. WTI will average $94.65 a barrel this year, up from a June projection of $93.25 and near the year-to-date average of $94.60. Brent will average $104.68, up 3 cents from last month’s prediction, the EIA said.

Equities Gain

The S&P 500 jumped 0.7 percent to 1,652.32, capping the longest winning streak since May 15. Equities increased amid speculation that companies will report better-than-forecast earnings and that growth is strong enough to withstand any reduction in the Federal Reserve’s $85 billion in monthly bond purchases aimed at stimulating the economy.

Job openings climbed in May and hiring picked up as U.S. companies grew more upbeat about the economy’s prospects for the second half of the year, a Labor Department report showed today.

Global economic growth will be 3.1 percent this year, unchanged from the 2012 rate, and less than the 3.3 percent forecast in April, the International Monetary Fund said today. The IMF reduced its 2013 projection for the U.S. to 1.7 percent growth from 1.9 percent in April.

Economic Outlook

“The earnings season is trumping the IMF data,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The earnings expectation is what’s supporting” equities and oil.

The U.S., the world’s biggest oil-consuming country, accounted for 21 percent of global oil demand last year, according to the International Energy Agency’s monthly oil market report published on June 12.

Crude stockpiles decreased 3.2 million barrels to 380.6 million in the week ended July 5, based on the median of 11 analyst estimates before a report tomorrow from the EIA, the Energy Department’s statistical arm. That would be the lowest level since Feb. 22.

Supplies dropped as refineries used crude to boost gasoline output to meet demand in the peak driving season. Refineries raised their operating rate to 92.4 percent last week, the survey showed. That would be the highest level since Aug. 10. Motor-fuel demand is greatest from the last weekend in May to the Labor Day weekend in early September, the prime vacation season in the U.S.

Egyptian Transition

Egypt’s appointment of El-Bablawi, who headed the finance ministry during part of the transitional period after the 2011 removal of Hosni Mubarak, will bolster interim President Adly Mansour as he confronts growing violence since Mursi’s July 3 eviction. That culminated in the killing yesterday of dozens of his supporters by the army.

Nobel laureate and anti-Mursi opposition leader Mohamed ElBaradei was named as vice president for foreign relations, the presidency said in a statement today.

WTI jumped 6.9 percent last week, the biggest increase since the five days ended Feb. 25, 2011, amid concern that unrest in Egypt will disrupt oil supplies. About 10 percent of Middle East crude moves through the Suez Canal and the Suez-Mediterranean Pipeline, both controlled by Egypt. Prices closed at $103.22 on July 5, the previous 14-month high.

“As long as we don’t see civil war breaking out in Egypt, I think the geopolitical risk has already been priced in,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Suez Shipments

The majority of crude oil transiting the Suez Canal travels northbound toward markets in the Mediterranean and North America. A combined 2.24 million barrels a day of oil were shipped from the Red Sea to Europe and North America in 2011 via the Suez Canal and the Suez-Mediterranean, according to the U.S. Energy Information Administration.

About 37 vessels with 2.22 million net tonnages moved through the Suez Canal in both directions today, compared with 55 vessels with 2.76 million tonnages on July 8 and 39 ships with 1.95 tonnages on July 7, according to the Suez Canal Authority.

Prices fell as much as 0.8 percent earlier as the Dollar Index, which measures the greenback against six other major currencies including the euro, climbed to a three-year high. An advancing dollar reduces oil’s appeal as an investment alternative.

WTI’s 14-day relative strength index closed above 70 for the third consecutive time today, data compiled by Bloomberg showed. Some investors start selling contracts when the reading crosses that threshold, seen as a sign that speculative buying has driven prices unreasonably high.

‘Elevated’ Price

“The oil price is elevated,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “Without any additional disruptions in Egypt, prices will probably come back down.”

Implied volatility for at-the-money WTI options expiring in August was 24.9 percent, up from 23.5 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 742,580 contracts as of 5:14 p.m. It totaled 727,118 contracts yesterday, 13 percent above the three-month average. Open interest was 1.79 million contracts.

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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