Oil Gains First Day in Seven; Goldman Sees Tighter Market

Oil rose for the first time in seven days in New York after China pledged to boost the nation’s economy and Goldman Sachs Group Inc. said the balance between supply and demand of crude is tightening.

Futures gained as much as 0.6 percent after settling at the lowest level in almost seven months on May 18. The extent of oil’s decline was unwarranted, Goldman said in a report. China will focus more on bolstering economic growth, the official Xinhua News Agency reported yesterday, citing Premier Wen Jiabao. Prices slid earlier after Saudi Arabia’s output in March climbed to the second-highest level in at least 31 years before a European embargo on Iran that starts in July. Crude’s relative strength index remained below 30, signaling it may be oversold.

“We’ve gone through downside technical targets and could be near a bottom,” said Anthony Nunan, a senior adviser for risk management at Mitsubishi Corp. in Tokyo. “Inventories have been building worldwide, basically preparing for the contingency if Iran production should drop after the import ban in July.”

Crude for June delivery rose as much as 56 cents to $92.04 a barrel in electronic trading on the New York Mercantile Exchange and was at $91.92 at 2:23 p.m. Singapore time. It fell 1.2 percent on May 18 to $91.48, the lowest close since Oct. 26 and expires today. The more-actively traded July contract climbed 41 cents to $92.21. Front-month prices are 7 percent lower this year.

Brent oil for July settlement rose 69 cents, or 0.6 percent, to $107.83 a barrel on the London-based ICE Futures Europe exchange. The front-month price for the European benchmark contract was at a premium to West Texas Intermediate of $15.61.

Technical Support

“Despite concerns over the softening economic data, oil demand continues to improve,” David Greely, head of energy research at Goldman Sachs in New York, said in the report e-mailed today. “The supply of oil actually available to the market is increasingly constrained by the inability of Iran to market its oil owing to the effects of US and European sanctions.”

Oil in New York has long-term technical support at $89.83 a barrel, according to data compiled by Bloomberg. On the weekly chart, that’s the 50 percent Fibonacci retracement of the intraday decline to $32.40 in December 2008 from a record high of $147.27 in July that year. Futures last traded at that price in November 2011.

Crude’s 14-day RSI has been below 30 since May 11, signaling further losses may not be sustainable. Buy orders tend to be clustered near chart-support levels. The RSI was at 23 today.

Saudi Supplies

Brent, the benchmark price for more than half the world’s petroleum, has dropped about 4 percent since May 13, when Saudi Arabia’s Oil Minister Ali al-Naimi said it should fall to $100 a barrel because global supply is outweighing demand.

Prices have fallen as Saudi Arabia’s output in March climbed to the second-highest level in at least 31 years before a European Union embargo on Iran that starts in July.

“With Saudi ramping up production to meet the need for oil once sanctions against Iran come into full effect, the oil market was pushed into surplus this year,” Greely said. “However, as Iranian supplies are increasingly shut out from the market as the sanctions take effect, that surplus is disappearing.”

Saudi Arabia increased daily output to 9.923 million barrels in March, according to the Joint Organization Data Initiative. That surpassed Russia, which pumped 9.92 million barrels a day, for the first time in six years. JODI is supervised by the Riyadh-based International Energy Forum and compiles data provided by member governments.

Iran, Stockpiles

Oil has also fallen this month amid speculation the U.S. and its allies will use strategic supplies to protect the global economy as they prepare for the EU ban on imports from Iran. The International Energy Agency has no definite plan to release fuel from its emergency reserves, David Fyfe, head of its oil industry and markets division, said in London on May 18.

Negotiations about the Persian Gulf nation’s nuclear program have made “good progress,” Yukiya Amano, director general of the International Atomic Energy Agency, said yesterday before departing on a flight to Tehran. Amano will meet with the country’s top nuclear negotiator, Saeed Jalili.

Money managers cut net-long positions on New York crude by 6 percent to 139,182 contracts, the lowest since September 2010, in the seven days ended May 15, according to the Commodity Futures Trading Commission’s Commitments of Traders report on May 18.

The U.S. accounted for about 21 percent of the world’s oil consumption in 2010, according to BP Plc’s Statistical Review of World Energy. China accounted for 11 percent.

The average price for regular gasoline at U.S. filling stations fell 6.19 cents in the past two weeks to $3.7833 a gallon, according to Lundberg Survey Inc. The survey is based on information received from about 2,500 stations by the Camarillo, California-based company. The price is 12.41 cents lower than a year earlier, when the average was $3.9074. The highest average this year was $3.9671, during the two weeks ended April 6.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE