Oil advanced with U.S. equities on a report that housing prices fell less than expected and speculation that inventories declined last week. Brent crude’s premium to New York futures widened the most in four months.
Crude reversed losses in late trading as the Standard & Poor’s 500 Index gained, led by homebuilders. The S&P/Case-Shiller index of property values in 20 cities fell 1.9 percent in April from a year earlier, the smallest drop since November 2010. Oil stockpiles may have fallen 1.3 million barrels last week, the median estimate of 12 analysts surveyed by Bloomberg.
“This is an equity-driven market,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “Oil is underpinned by outside market influences. And since the market has come down so fast, the risk is to the upside.”
Oil for August delivery increased 15 cents, or 0.2 percent, to settle at $79.36 a barrel on the New York Mercantile Exchange. Prices have fallen 23 percent this quarter, the biggest drop since the final three months of 2008.
Prices were little changed after the American Petroleum Institute said oil inventories grew 507,000 barrels last week to 385.7 million. The August contract gained 19 cents, or 0.2 percent, to $79.40 a barrel in electronic trading. The contract was at $79.42 before the report was released at 4:30 p.m.
Brent crude for August settlement rose $2.01, or 2.2 percent, to $93.02 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to West Texas Intermediate widened for the third straight day, rising to $13.66 from yesterday’s $11.80. The increase of $1.86 was the largest since Feb. 6.
The S&P 500 advanced 0.5 percent, erasing an earlier decline of 0.3 percent. The drop in the housing index was smaller than the 2.5 percent decline forecast by economists surveyed by Bloomberg and followed a 2.6 percent decrease in the year ended March.
“The Case-Shiller index is raising some optimism in the housing market,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
U.S. oil inventories may have dropped 1.3 million barrels last week, the median estimate of 12 analysts surveyed by Bloomberg. The Energy Department releases the inventory report at 10:30 a.m. in Washington. Inventories were 387.3 million barrels as of June 15, the highest level since 1990.
Brent’s premium to WTI widened the most since Feb. 6 as the European benchmark surged on concern that supply from Iran will be disrupted. Iranian Deputy Oil Minister Ahmad Ghalebani said exports may “gradually” decline by as much as 30 percent after sanctions start next week amid field maintenance work.
Iran is planning workovers and maintenance on oil fields just as the European Union sanctions begin, Ghalebani, who is also head of National Iranian Oil Co., told reporters at an energy conference in Moscow.
An EU embargo aimed at derailing Iran’s nuclear enrichment program will come into effect July 1 after talks with the Persian Gulf state failed to reach a breakthrough.
“As we come closer to the July deadline, the Iran risk is increasing,” Ilczyszyn said. “We are well stocked in WTI, and the Middle East risk is better reflected on the Brent contracts.”
Oil declined earlier on concern the European debt crisis is worsening and as data showed U.S. consumer confidence declined to a five-month low.
European proposals to reshape the crisis-struck euro area ran into immediate criticism from Germany for putting too much emphasis on debt sharing and too little on controlling national budgets. Chancellor Angela Merkel told lawmakers of her ruling coalition she “doesn’t see” shared debt happening in the euro area, according to Steffen Seibert, her chief spokesman.
“There is a lot of uncertainty in the market not just on the economic side but also on the fundamental side,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “Nothing that’s been done so far in Europe is really giving the market a lot of confidence.”
The consumer confidence index fell to 62 this month from a revised 64.4 in the prior month, the Conference Board reported. Economists surveyed by Bloomberg predicted a reading of 63.
Oil demand in the U.S., the world’s biggest user, will decline for a second year in 2012, according to Energy Department estimates.
“We are getting a lot of supplies and economic sentiment is getting worse,” Correll said. “The market is concerned that things could get worse in Europe.”
Electronic trading volume on the Nymex was 423,700 contracts as of 4:34 p.m. in New York. Volume totaled 425,191 contracts yesterday, 24 percent below the three-month average. Open interest was 1.42 million.