Oil Rises After Unexpected Decline in U.S. Inventories

Oil rose to a one-week high after the Energy Department reported that crude supplies unexpectedly declined and as equities gained on increasing optimism that U.S. economic growth is accelerating.

Futures climbed 1 percent after crude supplies fell 2.05 million barrels to 373.1 million last week. A gain of 1.8 million was the median estimate of analysts surveyed by Bloomberg. Stocks rose on better-than-expected economic reports, including a five-month high for the Institute for Supply Management’s factory index.

“The crude inventory numbers were obviously bullish,” said Todd Horwitz, chief strategist at Adam Mesh Trading Group in Chicago. “Crude is also up because the stock market is flying on the good ISM number, improving consumer confidence and the improving jobs picture.”

Crude oil for December delivery rose 85 cents to $87.09 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 22. Prices are down 12 percent this year.

Brent crude for December settlement dropped 53 cents, or 0.5 percent, to end the session at $108.17 a barrel on the London-based ICE Futures Europe exchange. It was the fourth straight decline for the contract.

The European benchmark crude grade traded at a $20.92 premium to West Texas Intermediate oil in New York, down from $22.46 yesterday.

The department released its weekly inventory report at 11 a.m. in Washington, a day later than usual because of delays caused by Hurricane Sandy.

Production, Inventories

U.S. crude oil production climbed for an eighth week to 6.67 million barrels a day, the most since January 1995, the Energy Department reported. Imports dropped 10 percent to 7.92 million barrels a day.

Gasoline inventories rose 935,000 barrels to 199.5 million million, versus an expected gain of 850,000. Distillate inventories dropped 93,000 barrels to 117.9 million, versus an expected decline of 1.4 million.

Refineries operated at 87.7 percent of capacity last week, the highest level since September, the report showed.

Next week’s report may show a gasoline supply decline after Hurricane Sandy shut refineries in the U.S. Northeast. Phillips 66 and Hess Corp.’s New Jersey refineries, which closed before the storm struck, won’t reopen until post-storm assessments are complete, the companies said.

Equity Rally

The Standard & Poor’s 500 Index climbed 1 percent and the Dow Jones Industrial Average advanced 0.9 percent at 3:34 p.m. after the Nymex floor closed.

Manufacturing expanded in October at a faster pace than forecast as orders and output picked up. The Tempe, Arizona-based ISM’s factory index climbed to 51.7 last month, the highest level since May, from 51.5 in September. The median forecast of economists surveyed by Bloomberg was 51.

Confidence among American consumers climbed in October to a four-year high. The Conference Board’s sentiment index increased to 72.2, the highest level since February 2008, from a revised 68.4 in September, figures from the New York-based private research group showed today. The median estimate in a Bloomberg survey was 73.

Applications for jobless benefits in the U.S. fell 9,000 to 363,000, the Labor Department said today in Washington, below the 370,000 median estimate of economists surveyed by Bloomberg.

The Labor Department may report tomorrow that employers took on 125,000 workers in October, not enough to keep the jobless rate from rising to 7.9 percent from 7.8 percent, according to the Bloomberg survey median.

U.S. Election

The jobs report, the last before the Nov. 6 presidential election, may help sway voters trying to decide between giving President Barack Obama another four years in office or changing course with Republican challenger Mitt Romney.

“The positive economic data is giving us a bit of a bid,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The jobs numbers and the consumer confidence report were both better than expected. The market is focused on tomorrow’s monthly jobs numbers and the election next week.”

Crude oil futures also advanced after China’s manufacturing rebounded. China’s Purchasing Managers’ Index rose to 50.2 in October from 49.8 in September. The index rose for the first time in four months, data from the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing showed today.

Turning Corner

“Positive PMI data released this morning appears to show that China’s economy is turning a corner after several months of slowdown,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.

The U.S. and China are the world’s biggest oil-consuming countries, accounting for a combined 32 percent of world demand in 2011, according to BP Plc’s Statistical Review of World Energy released in June.

Electronic trading volume on the Nymex was 384,071 contracts as of 3:34 p.m. Volume totaled 426,060 contracts yesterday, 18 percent below the three-month average. Open interest was 1.61 million, the most since Sept. 18.

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