Crude oil rose to a three-week high as a tropical wave formed in the Caribbean, potentially threatening production in the Gulf of Mexico, and on predictions of a decline in inventories.
Oil climbed after the National Hurricane Center said that a weather system over Puerto Rico and the Dominican Republic has a 60 percent chance of becoming a tropical cyclone. An Energy Department report tomorrow will probably show that U.S. stockpiles of crude oil dropped last week, according to a Bloomberg News survey.
“If it weren’t for the tropical wave, we wouldn’t be higher,” said Phil Flynn, vice president of research at PFGBest in Chicago.
Crude oil for August delivery rose 90 cents, or 1.2 percent, to $77.44 a barrel on the New York Mercantile Exchange, the highest settlement since June 28. The August contract expired today. The September contract added 68 cents, or 0.9 percent, to end the session at $77.58.
Prices rose from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles declined 241,000 barrels to 353.3 million. September oil climbed to $77.85 in electronic trading at 4:36 p.m.
If the weather system becomes a tropical storm, it will be the second of the season. The Gulf of Mexico makes up about 31 percent of U.S. oil output and 10 percent of its natural-gas production and is home to seven of the 10 busiest ports, according to the Energy Department. States along the Gulf are home to 43 percent of operable U.S. refining capacity.
Stockpile Decline Forecast
Stockpiles of crude oil fell 1.2 million barrels last week, according to the median of 17 analyst estimates before an Energy Department report tomorrow. It would be the fourth consecutive decline. Inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, probably increased.
“We’re seeing some short covering ahead of the numbers,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, consultant. “The market is starting to show some independence and not following stocks like before.”
Short covering occurs when an investor who has borrowed securities or commodities buys them to complete a transaction.
The spread between the two contracts closest to expiring declined to 14 cents, the least since February. The August contract is $1.39 lower than the December contract, down from a spread of $2.81 on June 21.
“The spreads are really coming in,” said Ric Navy, a broker at BNP Paribas SA in New York. “We remain stuck in a trading range with a real tug of war between both bullish and bearish factors.”
Oil in New York has traded in a range of $8.29 for the past month, from $71.09 to $79.38 a barrel.
Equities also rose after an increase in building permits, a gauge of future construction. The Standard & Poor’s 500 Index rose 0.9 percent to 1,081.18 and the Dow Jones Industrial Average increased 0.6 percent to 10,212.56 at 3:27 p.m.
“The global economy is doing much better than it had been getting credit for,” said James Cordier, a portfolio manager at OptionSellers.com in Tampa, Florida. “Lower housing starts and unemployment in the U.S., that’s a big factor but it’s not the only game in town. If the stock market holds together, oil has a good chance of trading back to $80 again this month.”
U.S. builders cut back on housing starts on a slump in home sales that followed the expiration of a government tax incentive, a report from the Commerce Department showed today. Work began on 549,000 houses at an annual rate last month, down 5 percent from May. Payrolls decreased in 27 U.S. states last month, the Labor Department said today.
China Overtakes U.S.
China overtook the U.S. as the world’s biggest energy user last year, according to the International Energy Agency. China consumed 2,252 million metric tons of oil equivalent in 2009 in the form of oil, coal, natural gas, nuclear power and renewable sources, Fatih Birol, IEA’s chief economist, said yesterday. That exceeded the 2,170 million tons used by the U.S.
Recent patterns indicate China may surpass the U.S. as an oil importer within a decade, sooner than the IEA expects. The U.S. and China, the world’s biggest energy consuming countries, accounted for 32 percent of global oil demand in 2009, according to BP Plc, which publishes its BP Statistical Review of World Energy each June.
“The market is reacting to the bullishness in the China news,” said Ray Carbone, president of Paramount Options Inc. in New York and a trader at the New York Mercantile Exchange. “It happened a lot faster than people thought it would.”
Brent crude oil for September settlement gained 60 cents, or 0.8 percent, to end the session at $76.22 a barrel on the London-based ICE Futures Europe exchange.
September futures had almost nine times the volume as the August contract as of 3:25 p.m. in New York. Aggregate volume on the Nymex was 415,828 contracts, down from the 2010 daily average of 687,000. Volume was 598,281 contracts yesterday, and open interest was 1.22 million.