Oil Trades Near One-Week High on Economic Outlook, Middle East

Feb. 18 (Bloomberg) -- Oil traded near a five-day high, heading for its biggest weekly gain in five, as signs of global economic growth spurred speculation fuel demand will rise and tension mounted in the Middle East.

New York crude fluctuated after a report showed Taiwan’s economy expanded faster than forecast, Vietnam lifted interest rates yesterday for the first time since November and the U.S. consumer-price index gained. Brent futures advanced as much as 0.4 percent in London after violence broke out during anti-government marches in Libya, raising concern that supplies from the eighth-largest producer in the Organization of Petroleum Exporting Countries will be disrupted.

“Oil’s holding well, which is probably a reflection that people are quite confident of the economic recovery continuing this year,” said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp. in Singapore. “People are a little bit cautious on the prospect of political unrest spreading to the other economies.”

Crude for March delivery was at $86.16 a barrel, down 20 cents, on the New York Mercantile Exchange at 1:21 p.m. Singapore time. The contract has risen 0.7 percent this week, the most since the five days through Jan. 14. The March contract in New York expires on Feb. 22. April crude gained 3 cents percent to $88.95.

Brent for April settlement rose as much as 38 cents to $102.97 a barrel on the ICE Futures Europe exchange in London. The contract is up 1.1 percent this week.

Brent-WTI Spread

A glut of oil at Cushing, Oklahoma, the delivery point for the U.S. futures, has weighed on New York prices relative to Brent. The difference between the April contracts in London and New York was at $13.70 a barrel today. WTI has averaged about 90 cents more than Brent in the past 10 years.

“WTI prices do not make any sense, the discount to European oil is far too big,” said Juerg Kiener, Singapore-based chief investment officer at Swiss Asia Capital Ltd., a fund manager. “Geopolitical tensions will remain and as such any set-back in prices will be a buying opportunity.”

Oil supplies at Cushing jumped to a record 38.3 million barrels in the week ended Jan. 28. Inventories were at 37.7 million in the seven days through Feb. 11, according to Energy Department data.

The spread narrowed yesterday from $15.94 on Feb. 16, as Brent dropped 1.2 percent compared with a 1.6 percent gain in West Texas crude.

Brent Strength

Brent’s advance above $104 a barrel in intraday trading yesterday may have prompted some investors to sell contracts and take profit, said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore.

Brent’s 14-day relative strength index, which measures how fast prices have risen or fallen, advanced to 60 today, according to data compiled by Bloomberg. A reading of 70 of more signals to some traders that a market is “overbought.”

“The trend is likely for oil prices to strengthen and the gap to narrow, with WTI catching up with Brent in the coming months,” Shum said.

U.S. data yesterday showed the Conference Board’s index of leading indicators rose for a seventh straight month, while a Federal Reserve gauge of Philadelphia-area manufacturing topped economists’ estimates. Figures from the Labor Department showed the consumer-price index increased 0.4 percent, exceeding the 0.3 percent median estimate of economists.

Economic Growth

Taiwan’s gross domestic product climbed 6.92 percent in the three months through December, the statistics bureau said yesterday. The government’s preliminary estimate was 6.48 percent.

Malaysia’s economy grew 4.6 percent last quarter, following a 5.3 percent expansion in the previous three months, according to the median forecast of 14 economists surveyed by Bloomberg News before today’s report. Thailand’s economy probably grew 4.1 percent during the quarter, according to a separate survey before the figures are released on Feb. 21.

Oil prices may increase next week as mounting Middle East tensions bolster the risk of a disruption of shipments from the region, a Bloomberg News survey showed.

Twenty of 46 analysts, or 43 percent, forecast crude oil will rise through Feb. 25. Fifteen respondents, or 33 percent, predicted prices will decline and 11 estimated little change. Last week, 48 percent said futures would decrease.

Libya’s “Day of Anger” protests against Muammar Qaddafi led to clashes with pro-government forces yesterday in which at least 19 people were reported killed. Libya holds the largest proven oil reserves in Africa, with 44.3 billion barrels in 2009, according to BP Plc's Statistical Review of World Energy.

Countries in the Middle East and North Africa were responsible for 36 percent of global oil production and held 61 percent of proved reserves in 2009, according to BP.

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net

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