West Texas Intermediate crude increased from a four-month low as equities advanced on corporate earnings and Chinese manufacturing data.
Futures rose 0.3 percent and the Standard & Poor’s 500 Index neared a record after a preliminary index of Chinese manufacturing gained more than forecast this month, while U.S. factory output expanded at a slower pace than estimated. WTI fell as much as 0.9 percent earlier on government data that showed yesterday that U.S. crude supplies gained 6.8 percent to 379.8 million barrels in the five weeks ended Oct. 18.
“We dropped close to a four-month low and there was no follow through, which suggests that the $16 move down over the last two months is sputtering out,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Inventories have climbed almost 25 million barrels in the last five weeks, which sent prices lower. Some of the economic fears that also put pressure on prices have dissipated.”
WTI crude or December delivery rose 25 cents to settle at $97.11 a barrel on the New York Mercantile Exchange. The contract touched $95.95, the lowest intraday level since June 27. Prices have tumbled since reaching $112.24 during trading on Aug. 28. The volume of all futures was 12 percent below the 100-day average at 3:11 p.m.
Brent oil for December settlement fell 81 cents, or 0.8 percent, to end the session at $106.99 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since Aug. 8. Volume was 1.9 percent higher than the 100-day average.
The European benchmark crude traded at a $9.88 premium to WTI at today’s close, down from $10.94 yesterday. The spread grew to $13.37 during trading yesterday, the most since April.
“WTI was oversold,” said Phil Flynn, a senior market analyst for Price Futures Group in Chicago. “Prices have fallen a great deal and the move was exhausted. The same goes for the WTI-Brent, which has widened a great deal recently.”
The Purchasing Managers’ Index for China, the world’s second-largest oil-consuming country, showed a 50.9 for October, compared with a 50.4 median estimate from analysts surveyed by Bloomberg. Readings above 50 indicate expansion. The index was released today by HSBC Holdings Plc and Markit Economics.
The Standard & Poor’s 500 Index rose 0.4 percent and the Dow Jones Industrial Average climbed 0.7 percent. The S&P 500 has increased 4.2 percent this month, extending the 2013 advance to 23 percent.
“The only thing keeping the oil market from falling apart is the relative strength of other risk assets such as stocks,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.
Nationwide crude inventories climbed 5.25 million barrels to 379.8 million last week, the most since June 28, the Energy Information Administration, the Energy Department’s statistical arm, said in a report yesterday. Supplies at Cushing, Oklahoma, the biggest U.S. oil-storage hub and the delivery point for WTI futures, climbed by 358,000 barrels for a second weekly gain.
Refineries operated at 85.9 percent of capacity, the lowest level in almost six months, yesterday’s EIA report showed.
“The supply build yesterday was really massive,” said Jason Schenker, president of Prestige Economics LLC in Austin. “The market is flooded right now and until we see refiners boost operating rates, supplies are going remain elevated and WTI will be under pressure. The Brent-WTI spread will stay wide until the refinery demand picks up here and supplies drop.”
U.S. crude production grew 6.3 percent last week to 7.9 million barrels a day, the most since March 1989. A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies in shale formations in North Dakota, Texas and other states.
WTI may extend its slide below $100 a barrel through the end of the year as U.S. supplies surge, easing concern that Iran’s nuclear activities will lead to armed conflict and that continuing political wrangling in Washington will curb economic growth, a Bloomberg survey on prices showed. Futures were projected to close at $97 on Dec. 31, according to the mean of 16 analysts and traders surveyed by on Oct. 21.
“It looks like WTI has touched a bottom for now,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We will have to see another inventory gain or a change in the geopolitical picture to spur another move lower.”
Implied volatility for at-the-money WTI options expiring in December was 20.4 percent, down from 21.4 percent yesterday, according to data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 481,500 contracts as of 3:12 p.m. It totaled 725,935 contracts yesterday, 24 percent higher than the three-month average. Open interest was 1.77 million contracts, the least since July 5.
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