Oil Gains Amid Speculation European Rescue Fund May Ease Crisis

Oil advanced in New York as European leaders prepared for talks on how to bolster a rescue fund that will ease the debt crisis threatening the region’s economy.

Futures climbed as much as 1.6 percent, paring a weekly loss. Europe may deploy as much as 940 billion euros ($1.3 trillion) to fight the debt crisis, two people familiar with discussions said. U.S. crude inventories dropped to a 20-month low this week, tumbling to the five-year seasonal average for the first time since July 2010.

“The fundamentals are far tighter than they were in 2008,” said Amrita Sen, an oil analyst at Barclays Plc in London. “The current geopolitical context creates significant tail risks in a world with such limited spare capacity.”

Crude for December delivery gained as much as $1.38 to $87.45 a barrel in electronic trading on the New York Mercantile Exchange and was at $87.30 at 1:30 p.m. in London. The contract yesterday fell 0.3 percent to the lowest close since Oct. 13. Front-month futures are up 0.6 percent this week and 4.5 percent lower this year.

Brent oil for December settlement traded at $110.85 a barrel, up $1.09 on the London-based ICE Futures Europe exchange. The North Sea crude’s premium to the U.S. benchmark narrowed amid speculation that Muammar Qaddafi’s death will increase Libyan output. The European benchmark contract was $23 more than New York futures, compared with yesterday’s close of $23.69 and a record of $27.88 on Oct. 14.

Expedite Output

The death of the former Libyan leader will expedite the return to normal output levels, according to the state-run National Oil Corp.

His capture in his home town of Sirte yesterday “will help in getting a lot of fields back into production as soon as possible,” Nuri Berruien, the chairman of National Oil, said in a telephone interview from Libya. “Now that Sirte is liberated, people can move quickly. People can go to the fields that are in the west.”

Fighting has reduced the availability of light, sweet crude, or oil with low density and sulfur content, from Libya, a member of the Organization of Petroleum Exporting Countries. The country’s output fell to 45,000 barrels a day in August from pre-crisis levels of about 1.6 million, according to data, compiled by Bloomberg. The North African nation pumped 100,000 barrels a day last month.

“Gaddafi’s capture won’t have any impact on the oil market,” said Alexander Ridgers, London-based head of commodities at CMC Markets, which handles about $160 million a day in crude contracts. “It’s not as though he was still running the country.”

Finance ministers meet in Brussels today at 2 p.m. to lay the groundwork for an Oct. 23 meeting of government leaders.

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