Oil Rises to One-Month High as Strike Halts Norway Output

Oil rose to its highest in a month in London as China reduced interest rates for the second time in four weeks, while a strike prompted Norway’s largest oil producer to announce it would halt production.

Brent futures gained as much as 2.6 percent. China’s one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective tomorrow, the People’s Bank of China said on its website today. About 2 million barrels a day of oil equivalent may be affected if a planned lockout of Norwegian oil workers goes ahead, according to Statoil ASA. Oil pared gains as the dollar strengthened after the European Central Bank cut interest rates.

“This strike and potential shutdown negatively impacts North Sea supply, as such the price of the Brent benchmark; that’s why this is significant,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “The government has the legal right to end the strike and prevent the shutdown. The question is when they’ll use it.”

Brent oil for August settlement rallied as much as $2.57 to $102.34 a barrel, its highest price since June 7 on the London-based ICE Futures Europe exchange. It was at $101.37 at 1:09 p.m. local time. The European benchmark’s premium to the U.S. benchmark, West Texas Intermediate, rose to $13.14 from $12.11 yesterday.

All Offshore Output

Oil for August delivery on the New York Mercantile Exchange was at $88.23, up 0.7 percent from its July 3 close. There was no floor trading yesterday because of the U.S. Independence Day holiday. Transactions since the last close will be booked with today’s trades for settlement purposes. Prices are down 11 percent this year.

The Norwegian Oil Industry Association, which represents employers, will ban all members of the Industri Energi, SAFE and Lederne labor unions who are covered by offshore pay agreements from midnight on July 9, Statoil said today on its website. The lockout will halt the nation’s entire offshore production, which totals about 2 million barrels a day of oil equivalent, Bard Glad Pedersen, a spokesman for Statoil ASA, said by phone today from Oslo.

“Keep in mind that this is exactly what the unions were trying to avoid, as it should force intervention from the government to force the workers back to work,” said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland.

U.S. Stockpiles

The ECB cut interest rates to a record low and said it won’t pay anything on overnight deposits as the sovereign debt crisis threatens to drive the euro region into recession.

U.S. crude stockpiles probably decreased by 2.3 million barrels last week, according to a Bloomberg survey before an Energy Department report today. Inventories may have dropped as Tropical Storm Debby delayed tanker arrivals and reduced output at Gulf of Mexico platforms, the survey respondents said.

The industry-funded American Petroleum Institute stated July 3 that crude supplies dropped by 3 million barrels to 382.6 million. Gasoline inventories declined by 1.4 million barrels, according to data from the API.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

U.S. employers increased payrolls by 90,000 workers last month after a 69,000 gain in May, according to the median forecast of 59 economists surveyed by Bloomberg ahead of Labor Department figures due tomorrow. Excluding government agencies, private hiring may have climbed by 100,000, concluding the smallest quarterly rise since the first three months of 2010.

“Price action over today and tomorrow will be heavily influenced by the outcome of the ECB meeting and the non-farm payrolls report,” said BNP’s Tchilinguirian. “In the case of the U.S. data, this will be key in shaping expectations around whether or not the Federal Reserve implements a third round of quantitative easing.”

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