Oil Rallies in Late Trading for First Gain in Three Days

Oil rose, capping the biggest monthly gain since October, as the Federal Reserve said the economy is expanding at a “modest to moderate pace” and U.S. gross domestic product expanded more than forecast.

Oil gained for the first time in three days as the Federal Reserve said manufacturing grew across the nation in its Beige Book and the Commerce Department said the economy advanced at a 3 percent rate in the last quarter of 2011. Crude slipped as much as 1.6 percent earlier after the Energy Department reported inventories gained more than expected.

“Anything that helps lift expectation for demand is bullish for oil,” said Kyle Cooper, director of research at IAF Advisors, a Houston-based energy consulting company. “The bigger-than-expected inventory build is overtaken by the good economy report.”

Crude oil for April delivery gained 52 cents, or 0.5 percent, to settle at $107.07 a barrel on the Nymex. Prices, which rose 8.7 percent for the month, have gained 8.3 percent this year.

Brent oil for April settlement increased $1.11, or 0.9 percent, to settle at $122.66 a barrel on the London-based ICE Futures Europe exchange. Brent gained 11 percent this month.

“Manufacturing continued to expand at a steady pace across the nation,” with “several districts indicating gains in capital spending, especially in auto-related industries,” the Fed said in the Beige Book, published two weeks before the Federal Open Market Committee meets to set monetary policy.

Bernanke Testimony

Chairman Ben S. Bernanke said in congressional testimony that maintaining monetary stimulus is warranted even as the unemployment rate falls and rising oil prices may cause inflation to rise temporarily.

“Bernanke basically said, ‘We can’t do anything about higher gasoline prices,’” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “We are still in a bull market.”

The growth in the fourth-quarter GDP is the most since the second quarter of 2010, according to the Commerce Department. Economists surveyed by Bloomberg called for no change in U.S. GDP growth from the previously reported 2.8 percent gain. The world’s largest economy expanded at a 1.8 percent rate in the prior three months.

More Services Demand

Consumer spending in the U.S. grew at a 2.1 percent annual rate, reflecting a pickup in demand for services, the Commerce Department also reported. Purchases added 1.5 percentage points to growth, the most in a year.

“GDP was revised upward and that’s playing into the increasing demand expectation,” said Phil Flynn, an analyst at PFGBest in Chicago. “The market is getting a bit of benefit from the improving economic prospect.”

Total petroleum demand gained 0.1 percent in the week ended Feb. 24 to 18.3 million barrels a day, the Energy Department said in the weekly report. Gasoline inventories fell 1.6 million barrels to 229.9 million. Distillate supplies, which include heating oil and diesel, fell 2.07 million barrels to 141.4 million.

Oil touched a nine-month high of $109.95 a barrel Feb. 24 as the U.S. and Europe ramped up sanctions against Iran over its nuclear program and Iran threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s crude.

Iran produced 3.45 million barrels of oil a day last month, according to estimates compiled by Bloomberg. Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, pumped 9.69 million barrels a day.

Inventories Increase

Prices fell as low as $104.84 in intraday trading after the Energy Department said supplies rose 4.16 million barrels to 344.9 million last week.

“The inventory increase is pretty bearish and it indicated weak demand in the U.S.,” said David McAlvany, chief executive officer of McAlvany Financial Group in Durango, Colorado. “Prices should have gone lower without external factors such as Iran.”

The inventory gain was almost four times the 1.1 million-barrel increase that was the median estimate of analysts in a Bloomberg News survey. The stockpile level was at the highest since the week ended Sept. 9.

“The market is vulnerable to the downside,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York.

Brent’s premium to WTI rose for the first time in five days as inventories at Cushing, Oklahoma, the delivery point for Nymex futures, increased 5.1 percent to 33.8 million barrels, the highest level since Aug. 5. The premium widened 59 cents to $15.59 a barrel.

Electronic trading volume on the Nymex was 639,283 contracts as of 5:06 p.m. in New York. Volume totaled 614,103 yesterday. Open interest was 1.52 million contracts.

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