Oil Trims Biggest Drop Since June as Losses Considered Excessive

Oil advanced in New York as optimism that central bank stimulus will revive the global economy fanned speculation that crude’s biggest weekly decline in more than three months was excessive.

November futures rose as much as 1.3 percent after front-month prices slid 7.2 percent in the four days through yesterday, when the October contract expired. The Financial Times reported that Spanish and European Union officials are working on plans to trigger bond purchases by the European Central Bank. Standard & Poor’s 500 Index futures advanced 0.3 percent.

“Oil is caught between the pull of excess supply over the next few months, and the push of quantitative easing and hopes for an improvement in growth from the various stimulative programs,” said Guy Wolf, a strategist at London-based commodities broker Marex Spectron Group Ltd. “We think it is likely to remain volatile for a while longer.”

Crude for November delivery advanced as much as $1.23 to $93.65 a barrel in electronic trading on the New York Mercantile Exchange and was at $93.57 at 1:28 p.m. London time. It climbed 12 cents yesterday to $92.42. The October contract expired at $91.87, down 11 cents. Front-month prices are down 5.5 percent this week, the biggest decline since the period ended June 1.

Brent oil for November settlement climbed $1.27 to $111.30 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate was at $17.73, compared with $17.61 yesterday.

Bollinger Band

New York crude has technical support after settling below the lower Bollinger Band at $92.55 a barrel the past two days. The last time it closed below the band on June 21, oil gained 12 percent over the next eight trading sessions.

“We should see a 30 percent to 50 percent recovery of the crude price drop in short order,” said Phil Flynn, a senior market analyst at the Price Futures Group in Chicago. “When you see an unexpected sharp price drop like that, you normally see a peak to valley move about $10 from high to low and then the buyers come in,”

Investors may be buying oil to hedge against inflation after central banks announced stimulus measures, said Torbjoern Kjus, an Oslo-based senior oil analyst with DNB ASA, in an interview in Singapore. The European Central Bank announced an unlimited bond-purchase program Sept. 6 and the U.S. Federal Reserve pledged a third round of debt-buying Sept. 13.

Inflation Fear

“People start to fear inflation and that’s positive for oil prices,” said Kjus. “When the central banks increase liquidity, there’s more money seeking excess returns. That’s also a reason to buy oil.”

New York crude may decline next week after reports from Asia, Europe and North America fueled concern that global economic growth is slowing, according to the Bloomberg survey. Thirteen of 27 analysts, or 48 percent, forecast oil will drop through Sept. 28. Seven respondents predicted that futures will gain and seven said there will be little change in prices.

The oil market is sufficiently supplied, and additional crude is coming from Saudi Arabia, Canada and the U.S., the International Energy Agency’s executive director, Maria van der Hoeven, said yesterday in Madrid.

A fire at a fuel-storage tank at Petroleos de Venezuela SA’s El Palito refinery should be put out today, according to the country’s President Hugo Chavez. A second tank blaze was extinguished yesterday.

The fires were triggered by lightning that struck a seal on the tanks at 7:30 p.m. on Sept. 19 during a rainstorm, Oil Minister Rafael Ramirez said in a telephone call aired on state TV. Trucks used foam to extinguish the second fire, he said.

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