Oil Heads for Biggest Weekly Increase in a Month on U.S. Economy

Oil headed for its biggest weekly gain in a month on speculation that U.S. fuel demand will increase as the economic recovery gathers pace in the world’s biggest oil consumer.

Futures trimmed yesterday’s 1.4 percent rally as the dollar pared losses against the euro, reducing oil’s investment appeal. Crude has climbed 4.6 percent this week, the most since the period ending Nov. 5, as data showed U.S. home sales rose and manufacturing expanded. A Labor Department report today may indicate the U.S. hired more workers for a second month.

“The market is going to be focused on what happens tonight with the unemployment number,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “Oil is coming back a little bit because of profit-taking.”

The January contract was at $87.59 a barrel, down 41 cents, or 0.5 percent, in electronic trading on the New York Mercantile Exchange at 8:20 a.m. London time. It closed yesterday at $88 a barrel, the highest since October 2008.

Brent crude for January settlement was down 40 cents at $90.29 a barrel on the ICE Futures Europe exchange in London. The contract increased $1.82, or 2 percent, to end the session yesterday at $90.69, the highest close since Oct. 1, 2008.

U.S. employers added 150,000 workers last month, a Bloomberg survey showed before the Labor Department report today. Data yesterday showed pending sales of U.S. existing houses unexpectedly jumped by a record 10 percent in October, while claims for jobless benefits over the past month on average dropped to a two-year low.

Brent Backwardation

Brent crude for next month is trading at a 4-cent premium to the February future, a market situation known as backwardation that suggests prompt supplies are more in demand than later deliveries.

Demand for European crude has increased as declining temperatures in the region boost heating oil consumption. The premium of gasoil, another term for the fuel, climbed to $11.61 above Brent crude, from $10.81 yesterday, according to ICE data.

“The falling temperatures and the snowing in Europe is a factor in creating stronger crack spreads,” said Ken Hasegawa, a commodity derivatives sales manager at broker Newedge in Tokyo. “That’s creating local demand for crude.”

Oil analysts surveyed by Bloomberg News were split over the direction of crude oil prices next week. Ten of 28 analysts, or 36 percent, forecast crude will advance through Dec. 10. Ten more respondents predicted that futures will be steady. Eight said there will be a decline.

Oil also rose this week as gasoline prices in New York surged amid declining stockpiles in the U.S. Northeast. Inventories along the East Coast fell 1.8 percent last week, an Energy Department report showed yesterday. Irving Oil Corp. said it shut a unit at its Saint John refinery in New Brunswick that supplies New York, the delivery point for the Nymex contract.

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