Oil Advances in Last Hour of Trading, Reversing Decline

Oil rose to the highest level in more than three weeks in New York as the biggest gain in U.S. consumer spending in more than a year and better-than-projected earnings overshadowed lower-than-forecast economic growth.

Futures climbed 0.4 percent after the Commerce Department said household purchases increased 2.9 percent, exceeding the most optimistic projection by economists surveyed by Bloomberg. Gross domestic product grew at a 2.2 percent annual rate, missing the 2.5 percent projection. Equities increased after Amazon.com Inc. posted earnings per share that quadrupled.

“The market has shrugged off some of the negative news and is closing higher,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The government data is being interpreted as modestly positive and corporate profits have been healthy.”

Crude oil for June delivery climbed 38 cents to $104.93 a barrel on the New York Mercantile Exchange, the highest settlement since April 2. Futures gained 1.8 percent this week and have increased 6.2 percent this year.

Brent oil for June settlement slipped 9 cents to end the session at $119.83 a barrel on the London-based ICE Futures Europe exchange.

The rise in U.S. household consumption followed a 2.1 percent gain in the prior quarter and exceeded the 2.3 percent median forecast in the Bloomberg survey. Purchases added 2 percentage points to growth.

GDP expansion slowed from a 3 percent pace in the fourth quarter. Corporate spending on equipment and software climbed at a 1.7 percent pace, the weakest level in almost three years, after advancing at a 7.5 percent rate in the previous quarter.

Credit Rating

Spain’s sovereign credit rating was cut for the second time this year by Standard & Poor’s. Spanish debt was reduced to BBB+ from A, with a negative outlook. The country’s short-term rating was reduced to A-2 from A-1, New York- based S&P said in a statement yesterday.

The European sovereign debt crisis that began in Greece and then moved to Ireland, Portugal, Italy and Spain has reduced economic growth in the euro region.

“With a 2.2 percent GDP in the U.S. and Europe slowing down, it’s difficult to make a case for $110, $115 crude oil,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida.

The countries using the euro accounted for about 12 percent of global oil demand in 2010, according to BP Plc’s Statistical Review of World Energy. The U.S. was the biggest crude user, responsible for 21 percent of world consumption.

OPEC Production

Oil output in April by the Organization of Petroleum Exporting Countries climbed to the highest level in more than three years, a Bloomberg survey showed. Production increased 305,000 barrels, or 1 percent, to an average 31.405 million barrels a day from a revised 31.1 million in March, according to the survey of oil companies, producers and analysts. Output rose to the highest level since October 2008.

Saudi Arabia, OPEC’s biggest producer, bolstered output by 115,000 barrels a day to 9.82 million this month. The gain left production at the highest level since August.

Electronic trading volume on the Nymex was 290,144 contracts as of 3:30 p.m. Volume totaled 417,413 contracts yesterday, the sixth straight day under 600,000 and 33 percent below the three-month average. Open interest was 1.56 million.

“Volume has dried up recently because crude is trading in a range, getting tighter and tighter, and that’s going to cause traders to seek other action because they want to participate in a market that is moving,” Cordier said.

Oil in New York has traded from $100.68 to $105.49 a barrel this month.

Prices may decrease next week on lower euro-region confidence and signs the U.S. is struggling to address unemployment levels, a Bloomberg survey showed. Sixteen of 37 analysts and traders surveyed forecast oil will drop through May 4. Twelve respondents predicted futures will rise and nine estimated there will be little change.

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