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Oil Nears 26-Month High as Retail Sales Gain, Supplies May Fall

Dec. 28 (Bloomberg) -- Oil settled near a 26-month high after a report showed U.S. retailers had their best holiday sales in five years and crude supplies were forecast to extend their biggest monthly decline since December 2006.

Oil advanced after MasterCard reported holiday sales rose 5.5 percent to $584 billion from Nov. 5 through Dec. 24, compared with 4.1 percent a year earlier. Oil inventories probably shrank for the fourth consecutive week, according to the median estimate of analysts in a Bloomberg News survey, the longest stretch of declines in a year.

“We’re staying in the $90 area, with an eye on hitting $100 in the new year,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “Demand is picking up and should rise further in coming months.”

Crude for February delivery gained 49 cents, or 0.5 percent, to settle at $91.49 a barrel on the New York Mercantile Exchange. Futures have advanced 15 percent this year. Crude futures closed at $91.51 a barrel Dec. 23, the highest price since October 2008.

Brent crude for February settlement increased 53 cents, or 0.6 percent, to $94.38 a barrel on the London-based ICE Futures Europe exchange, the highest closing price since Oct. 1, 2008.

U.S. gasoline demand at the pump jumped 4.6 percent last week to an average 9.613 million barrels a day in the week ended Dec. 24, according to data from MasterCard published today. That’s the highest level of consumption since July 2 and the largest weekly increase in 10 months.

U.S. Inventories

Crude stockpiles probably decreased 3 million barrels in the seven days ended Dec. 24 from 340.7 million the prior week, according to the median estimate of 10 analysts surveyed by Bloomberg News before a government report this week. Supplies have fallen this month by 19 million barrels, or 5.3 percent, the biggest monthly decline in four years.

The Energy Department will release its weekly report at 11 a.m. Dec. 30 in Washington, a day later than usual because of Christmas. The American Petroleum Institute, which collects stockpile information on a voluntary basis, will release its report tomorrow, also a day later than usual.

Oil, which rallied 78 percent in 2009, has risen this year as signs of a global economic recovery bolstered optimism fuel demand will grow.

Commodities Surge

At a time when money managers’ concerns have swung between record government stimulus and the potential for a new recession, investors remain bullish on commodities that beat stocks and bonds for a second year.

The benchmark Standard & Poor’s GSCI gauge advanced 20 percent, more than the 9.1 percent gain in the MSCI World Index of stocks and 5.3 percent return on a Bank of America Merrill Lynch index of Treasuries. Currency traders are betting on a stronger dollar, sending a contrarian signal because commodities moved in an opposite direction to the currency in 16 of the past 20 quarters, according to data compiled by Bloomberg.

“Commodities have had a fantastic year,” said Phil Flynn, a Chicago-based analyst and trader with investment adviser PFGBest. “A lot of it is good old-fashioned economic optimism. They look at numbers like the retail sales this morning and the stock market and get the sense that the economy is doing much better. The market is looking ahead of itself.”

S&P’s GSCI index fell 0.3 percent to 626.20 yesterday, ending five days of gains. The Thomson Reuters/Jefferies CRB Index of 19 commodities reached an intraday high of 332.15 today, the strongest level since Oct. 2, 2008. It was at 331.45 at 2:30 p.m. in New York. Thirteen of the commodities rose.

End-of-Year Trading

Earlier, oil fell as much as 0.3 percent to touch $90.75 a barrel. The Conference Board’s confidence index unexpectedly decreased in December to 52.5, less than the lowest forecast in a Bloomberg News survey of economists.

The S&P Case-Schiller index of property values fell 0.8 percent from October 2009, the biggest year-over-year decline since December 2009, the group said today in New York. The figure fell more than forecast.

“We’re in the midst of very quiet, end-of-year trading,” said Peter Beutel, president of Cameron Hanover Inc., a trading adviser in New Canaan, Connecticut. “A lot of people are taking the week off. If someone had a stray idea and decided to move the market in either direction, it would be hard to stop them. This would be more likely to happen to the upside.”

Oil volume in electronic trading on the Nymex was 179,868 contracts as of 3:21 p.m. in New York. Volume totaled 184,523 contracts yesterday, the lowest level since Dec. 24, 2009. Open interest was 1.4 million contracts, the most since Nov. 17.

To contact the reporters on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; or Mark Shenk in New York at mshenk1@bloomberg.net.

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net. NI CRMKTS

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