Oil rose to a seven-week high on speculation that inventories fell and as a report showed U.S. industrial production increased in June.
Prices advanced as supplies probably dropped 1.3 million barrels last week, a Bloomberg survey of analysts showed. Industrial output rose 0.4 percent. Prices fell earlier as Federal Reserve Chairman Ben S. Bernanke refrained from pledging new stimulus policies, then rebounded with equities as Bernanke said the central bank is ready to act to boost growth if labor markets don’t improve.
“The economic data is pretty good and it’s painting a better picture for oil demand,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The market is getting prepared for tomorrow’s inventory report.”
Crude for August delivery increased 79 cents, or 0.9 percent, to $89.22 a barrel on the New York Mercantile Exchange, the highest settlement since May 29. Prices have declined 9.7 percent this year. The five-day streak of gains is the longest since April 27.
Prices were little changed after the American Petroleum Institute said oil inventories fell 2.01 million barrels to 379.9 million last week. The August contract gained 61 cents to $89.04 a barrel at 4:32 p.m. in electronic trading in New York. Oil was at $89.09 before the API report’s release at 4:30 p.m.
Brent oil for September settlement advanced 63 cents, or 0.6 percent, to $104 a barrel on the London-based ICE Futures Europe exchange.
U.S. oil supplies probably fell to 376.9 million in the week ended July 13 as refineries processed more crude into gasoline, the Bloomberg survey showed. Analysts also predicted gains of 1.2 million barrels in gasoline stockpiles and 1.3 million in distillate. The refinery utilization rate increased to 93 percent of capacity, which would be a five-year high.
Crude inventories dropped 4.7 million barrels in the week ended July 6 to 378.2 million, the lowest level since April 27, the Energy Department reported last week.
“While traders may react to what Bernanke says, there is a completely independent, physical fundamental story,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The demand-supply balance is going to be significantly tighter in the third quarter than it was in the second.”
The International Energy Agency on July 12 forecast that world oil demand will increase next year by 1 million barrels a day to 90.9 million a day. Consumption in emerging economies will surpass developed nations for the first time ever in 2013, the Paris-based agency said.
The increase in June industrial production was bigger than the 0.3 percent forecast by economists surveyed by Bloomberg. The Fed also revised May data to show a 0.2 percent decline that was larger than first reported.
Oil also rose as confidence among homebuilders climbed in July to the highest level in five years and U.S. equities advanced. Crude, which reached an intraday high of $89.46, settled above the 50-day moving average for a second day.
“As we start breaking out above $90, the trend followers are starting to get long,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “That’s very bullish for oil.”
Oil fell as much as 1.2 percent in intraday trading after Bernanke said progress in reducing unemployment is likely to be “frustratingly slow” and refrained from discussing specific monetary actions to spur the economy.
Bernanke said in testimony to the Senate Banking Committee that economic growth slowed during the first half of this year. Equities advanced after Bernanke said he doesn’t view inflation as a hindrance to providing more stimulus.
“Bernanke’s testimony is a disappointment to those hoping that we get another affirmative step in terms of stimulus,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “He acknowledged a slowing economy but he didn’t come across with anything substantive as to what the Fed is going to do about it.”
Bernanke and his colleagues on the Federal Open Market Committee are considering whether the economy will need more stimulus to reduce a jobless rate stuck above 8 percent since February 2009. Last month, they decided to extend Operation Twist, which lengthens maturities of assets on the Fed’s balance sheet, to the end of the year.
Electronic trading volume on the Nymex was 555,204 contracts as of 4:32 p.m. in New York. Volume totaled 503,009 contracts yesterday, 10 percent below the three-month average. Open interest was 1.44 million.