Oil climbed to a five-week high after U.S. manufacturing increased at the fastest pace in 10 months, signaling that economic growth will accelerate in the world’s biggest crude-consuming country.
Futures gained 1.2 percent as the Institute for Supply Management’s factory index exceeded the most optimistic forecast in a Bloomberg survey of economists. Prices have fallen 4 percent from a March 1 peak as tensions have eased between Iran and Western nations over the country’s nuclear program.
“The reaction to the ISM shows that the market is much more focused on the state of the economy than the situation with Iran,” said David Greely, head of energy research at Goldman Sachs Group Inc. in New York. “This is the first surprise we’ve had to the upside in quite a while.”
Crude oil for June delivery gained $1.29 to $106.16 a barrel on the New York Mercantile Exchange, the highest settlement price since March 27. Oil has climbed 7.4 percent this year.
Prices were little changed after Washington-based industry group American Petroleum Institute said U.S. oil inventories rose 2.04 million barrels to 370.4 million last week, the highest level since May 27, 2011. The June contract gained $1.10, or 1 percent, to $105.97 in electronic trading at 4:34 p.m.
Brent oil for June settlement rose 19 cents to end the session at $119.66 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to West Texas Intermediate traded on the Nymex narrowed to $13.50, the smallest spread since Jan. 31.
The ISM index expanded to 54.8 in April from 53.4 in March. The median forecast by economists surveyed by Bloomberg called for a drop to 53. Readings greater than 50 signal growth.
“We had really good ISM manufacturing data,” said Phil Streible, a Chicago-based commodities broker at RJO Futures. “It exceeded expectations and signaled growth in the U.S. That’s going to help oil demand.”
The ISM report eased concern that manufacturing is slowing after data from the Federal Reserve Bank of Dallas trailed estimates yesterday.
The Labor Department will release April employment data on May 4. Payrolls climbed by 161,000 workers after a 120,000 gain in March, according to the median forecast of 80 economists surveyed by Bloomberg before the report. The jobless rate stayed at 8.2 percent, the survey showed.
“The ISM is important but the jobs report later this week will be of greater importance,” said Mike Wittner, head of oil market research at Societe Generale SA in New York. “It was jobs report a month ago that triggered the correction in prices during much of April.”
Also boosting oil, China’s manufacturing expanded for a fifth month in April. The Purchasing Managers’ Index rose to 53.3 from 53.1 in March, the country’s statistics bureau and logistics federation said in a statement today. That’s the highest reading in a year.
The U.S. and China are the world’s biggest oil consumers. Total fuel demand in the U.S. fell 0.6 percent to 18.8 million barrels a day in the week ended April 20, according to the Energy Department.
U.S. stocks also moved higher. The Standard & Poor’s 500 Index gained 0.6 percent.
“The equity market is contributing to the gain” in oil, said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market broke the $105 resistance level and this has triggered some technical buying.”
An Energy Department report tomorrow will probably show that U.S. crude stockpiles rose 2.5 million barrels last week to 375.5 million, according to the median of 11 analyst projections in a Bloomberg survey.
The department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.
Electronic trading volume on the Nymex was 526,312 contracts as of 4:34 p.m. in New York. Volume totaled 412,374 contracts yesterday, 34 percent below the three-month average. Open interest was 1.58 million.