Crude Surges the Most in Three Weeks on Manufacturing

West Texas Intermediate crude climbed the most in more than three weeks as manufacturing grew in the U.S. and China and labor protests shut Libya’s oil-export terminals.

Futures jumped 2.7 percent as the Institute for Supply Management’s U.S. factory index expanded at the fastest pace in two years in July and China’s Purchasing Managers’ Index beat expectations. Libyan Oil Minister Abdulbari Al-Arusi forecast yesterday that export capacity would plunge almost 80 percent today with only one port operable. Brent oil rose 1.7 percent.

“The macro news has been positive from the oil perspective,” said Michael Wittner, the head of oil-market research at Societe Generale SA in New York. “If Libya’s exports are temporarily cut, that’s definitely supportive for Brent and the overall complex, including WTI.”

WTI crude for September delivery increased $2.86 to $107.89 a barrel on the New York Mercantile Exchange, the biggest gain since July 10 and the highest settlement since July 19. The volume of all futures traded was 16 percent above the 100-day average at 3:40 p.m. Prices advanced 8.8 percent in July, the biggest monthly advance since August 2012.

Brent oil for September settlement climbed $1.84 to end the session at $109.54 a barrel on the London-based ICE Futures Europe exchange. The European benchmark’s premium to WTI narrowed to $1.65 from $2.67 yesterday.

U.S. ISM

The U.S. manufacturing index rose to 55.4 in July from 50.9 in June, according to the ISM in Tempe, Arizona. Economists surveyed by Bloomberg had expected an increase to 52.

U.S. jobless claims slid 19,000 last week to 326,000, the lowest level in more than five years, the Labor Department said today. The department may report tomorrow that employment rose by 185,000 last month, according to the median estimate of economists surveyed by Bloomberg.

China’s manufacturing index, reported today by the National Bureau of Statistics and the China Federation of Logistics and Purchasing, increased to 50.3 last month, exceeding the 49.8 median forecast in a Bloomberg survey.

The U.S. and China are the world’s two biggest oil-consuming countries, accounting for about a third of world demand in 2012, according to BP Plc (BP/)’s Statistical Review of World Energy.

“Oil is up because the economic data is rocking today,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The Chinese manufacturing numbers were better than expected, and all of the data that’s followed today has been positive.”

Libyan Exports

Libya’sAl-Arusi said yesterday that all oil terminals except Zawiya would close today, reducing exports by some 1.1 million barrels a day from the holder of Africa’s biggest crude reserves. Exports were 1.425 million barrels July 30, the minister said at the press briefing in Tripoli.

“The economy looks better, while the news from Libya is lousy,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “This is a very bullish combination of factors.”

The Organization of Petroleum Exporting Countries pumped less crude for a second month in July amid the biggest drop in Libyan output since the 2011 war that overthrew Muammar Qaddafi. OPEC output fell 245,000 barrels, or 0.8 percent, to an average 30.662 million barrels a day from 30.907 million in June, a Bloomberg survey of oil companies, producers and analysts shows.

Equities Rally

Crude also gained as the Standard & Poor’s 500 Index jumped above 1,700 for the first time after the release of the positive economic data. The S&P 500 was up 1.3 percent and the Dow Jones Industrial Average climbed 0.8 percent at 3:40 p.m.

Futures climbed 1.9 percent yesterday after the Energy Information Administration reported that crude stockpiles at Cushing, Oklahoma, the main U.S. oil storage hub, fell to a 15-month low in the week ended July 26 and the Federal Reserve said that low inflation may harm growth and pledged to maintain $85 billion a month in bond purchases to stimulate the economy.

“The Fed announcement that they are worried about deflation makes it less likely that they will reduce stimulus anytime soon,” Flynn said.

WTI also gained as Enterprise Products Partners LP (EPD) Chief Operating Officer Jim Teague said that heavy crude has accounted for about 30 percent of the volume on the Seaway Pipeline, which moves oil to the Houston area from Cushing.

The line moves an average 300,000 barrels a day of crude and has reached as much as 400,000 barrels, Teague said today on the company’s second-quarter earnings conference call. Enterprise and Seaway co-owner Enbridge Inc. (ENB) reversed the direction of the pipeline last year.

Seaway Flows

“Seaway’s announcement was definitely bullish for the front,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York, speaking of the oil contracts closest to expiration. “This means they’re running 70 percent light, more than people thought.”

Implied volatility for at-the-money WTI options expiring in September was 21.5 percent, compared with 21.9 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 643,067 contracts as of 3:40 p.m. It totaled 582,312 contracts yesterday, 12 percent below the three-month average. Open interest was 1.85 million contracts.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Moming Zhou in New York at mzhou29@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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