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Crude Rises to 26-Month High on U.S. Fuel Demand Speculation

Dec. 6 (Bloomberg) -- Oil traded at the highest in 26 months as signs the economic recovery is gathering pace in the U.S., the world’s biggest crude-consuming nation, stoked speculation that fuel demand will increase.

Oil rose as much as 0.6 percent after Federal Reserve Chairman Ben S. Bernanke said the U.S. may take more steps to bolster the economy. A return to a recession “doesn’t seem likely,” he said. Prices also gained as cold weather boosted heating demand in Europe.

“Ninety dollars a barrel is now like a magnet that the bulls in the market want to break through,” said Victor Shum, a senior principal at energy consultants Purvin & Gertz Inc. in Singapore. “These days, sentiment is so bullish that any bad news on the economic front can’t hurt the rally in oil.”

Crude for January delivery rose as much as 56 cents to $89.75 a barrel in electronic trading on the New York Mercantile Exchange. That is the highest intraday price since Oct. 9, 2008. The contract was at $89.72 at 3:36 p.m. Singapore time.

Oil will advance to $120 a barrel before the end of 2012 as consumption grows in emerging economies, according to a Dec. 3 report by JPMorgan Chase & Co. Futures will average $93 a barrel next year, up from a previous estimate of $89.75, the bank forecast.

Crude settled at $89.19 a barrel on Dec. 3, the highest closing price since Oct. 7, 2008. Prices are up 12.9 percent this year.

Bullish Bets

Hedge funds and other large investors increased bullish bets on oil last week as prices rose. The funds boosted so-called net-long positions by 18 percent in the seven days ended Nov. 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest increase since the week ended Oct. 5.

Brent crude for January settlement gained as much as 58 cents, or 0.6 percent, to $92 a barrel on the ICE Futures Europe exchange in London. The contract climbed 0.8 percent to $91.42 a barrel on Dec. 3.

“We’re right at the top end of the range” for crude prices, said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “We have been running with this explosive move,” since last week, he said.

Oil in New York is approaching a level observed by technical analysts as a point where the rally may stall. This price, at $89.84 a barrel, represents the so-called 50 percent Fibonacci retracement of the drop to $32.40 in December 2008 from a record high of $147.27 in July that year, according to Bloomberg data.

The Fibonacci sequence of numbers was identified by Italian mathematician Leonardo Fibonacci in the 13th century and is used to predict points where prices may rise or fall.

Oil rallied after Bernanke said the Fed may buy more Treasury securities beyond the $600 billion announced last month, according to a transcript of an interview airing today on CBS Corp.’s “60 Minutes” program. Still, unemployment may take five years to fall to a normal level, he said.

Cold Weather

Crude also advanced as unusually cold weather in Europe pushed heating oil prices to the highest in more than two years.

Gasoil, or heating oil, futures for December delivery climbed as much as 1.8 percent to $775.50 a metric ton on London’s ICE exchange today.

“The cold weather in Europe has helped squeeze up distillates demand, and that is supportive of stronger oil prices,” Purvin & Gertz’s Shum said.

The earliest widespread snowfall in the U.K. since 1993 has frozen over roads, disrupting traffic, with icy weather likely to last until at least Dec. 8, British Weather Services said last week.

Temperatures from the U.S. Midwest to the Northeast will be lower than normal from Dec. 8 through Dec. 16, the U.S. National Weather Service Climate Prediction Center said.

-- With assistance from Yee Kai Pin in Singapore. Editors: Alexander Kwiatkowski, Clyde Russell

To contact the reporters on this story: Ben Sharples in Canberra at bsharples@bloomberg.net; Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net.

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