WTI Crude Advances to Two-Week High on U.S. Economy

West Texas Intermediate crude rose to a two-week high on signs that economic growth is accelerating in the U.S., the world’s biggest oil-consuming nation.

Futures gained 0.4 percent. The pace of U.S. home construction dropped less than forecast in December, capping the best year for the sector since 2007, the Commerce Department reported. Industrial production grew for a fifth month in December, according to the Federal Reserve in Washington. U.S. crude supplies slid to the lowest level since March 2012.

“The rise in prices is a reflection of the better economic picture,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “An improving economy translates into more fuel demand.”

WTI for February delivery increased 41 cents to $94.37 a barrel on the New York Mercantile Exchange. It was the highest settlement since Jan. 2. Futures climbed 1.8 percent this week. The volume of all futures traded was 12 percent below the 100-day average at 3:49 p.m.

Brent for March settlement increased 73 cents, or 0.7 percent, to end the session $106.48 a barrel on the London-based ICE Futures Europe exchange. Earlier, it fell to $105.44, the lowest price for the front-month contract since Nov. 11. Volume was 16 percent lower than the 100-day average. The February contract expired yesterday after losing 4 cents to $107.09.

The European benchmark grade closed at a $11.89 premium to WTI for March delivery, down from a front-month gap between the two February contracts of $13.13 at yesterday’s settlement.

U.S. Economy

Housing starts fell to a 999,000 annualized rate in December from a 1.11 million pace that was the highest since November 2007, according to the Commerce Department.

Production at factories, mines and utilities climbed 0.3 percent after a revised 1 percent increase in November, Fed data showed. The gain matched the median forecast of economists in a Bloomberg survey. Manufacturing output rose more than projected.

“The economic data continues to impress and points to higher fuel demand,” said John Kilduff, partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “This week’s inventory report, which showed that supplies dropped to a 22-month low, is adding to a sense of tightness in the market.”

Crude in New York increased 1.7 percent on Jan. 15, after an Energy Information Administration report showed crude stockpiles fell 7.66 million barrels to 350.2 million last week.

Supplies have tumbled 41.2 million barrels since Nov. 22, the largest seven-week decline in data going back to 1982.

Consumer Confidence

Futures retreated from the day’s highs after a report showed that U.S. consumer confidence unexpectedly declined in January. The Thomson Reuters/University of Michigan preliminary index of sentiment fell to 80.4 from 82.5 in December. Economists in a Bloomberg survey called for a reading of 83.5, according to the median estimate.

“The consumer confidence numbers were a real downer,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Today’s data followed a lot of positive signals, so it came as a surprise.”

The Organization of Petroleum Exporting Countries said yesterday it pumped the least amount of oil in December since May 2011. OPEC’s 12 members produced 29.44 million barrels a day last month, down 20,000 barrels a day from November, according to a report from the Vienna-based group. That’s less than the 29.6 million a day the group predicts will be required in 2014.

Libyan Production

Libya restarted its Sharara field on Jan. 4 following talks with protesters. The group demonstrating there will extend by a week a deadline for the government to satisfy their demands before resuming the shutdown, Mustafa Lamin, their spokesman, said by phone yesterday. The country produced 570,000 barrels a day on Jan. 15, according to the state-run National Oil Corp.

Iraq will file a legal case against Turkey for allowing the pumping and export of crude from Kurdistan Regional Government territory in violation of an Iraq-Turkey 2010 agreement, Oil Minister Abdul Kareem al-Luaibi said in Baghdad.

“Although it appears that production in Libya and the Kurdish region of Iraq is increasing, neither source is very dependable,” Lynch said.

Implied volatility for at-the-money WTI options expiring in March was 17 percent, down from 17.9 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 422,962 contracts at 3:49 p.m. It totaled 509,874 contracts yesterday, 2.9 percent lower than the three-month average. Open interest was 1.63 million contracts.

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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