Oil Heads for Weekly Gain on China, U.S. Manufacturing Outlook

Oil rose in London, heading for a weekly gain as a report signaled manufacturing may expand at a faster pace this month in China, the world’s second-largest crude consumer.

Futures advanced as much as 1 percent and headed for the first weekly increase in three. A preliminary purchasing managers’ index for China by HSBC Holdings Plc and Markit Economics showed a reading of 50.9, higher than a median estimate of 50.8 in a Bloomberg News survey. A figure above 50 indicates an expansion. U.S. industrial production probably climbed 0.3 percent in November, according to a separate Bloomberg survey before Federal Reserve data today.

“China has been showing decent economic progress lately and so has the U.S.,” said Andrey Kryuchenkov, an analyst at VTB Capital in London who predicts Brent crude will trade from $104 to $114 a barrel this month. “The market is comfortable with supplies, and this will keep volatility down next year.”

Brent for January settlement, which expires today, advanced as much as $1.09 to $109 a barrel on the London-based ICE Futures Europe exchange. It was at $108.88 at 12:42 p.m. London time. The more actively traded February contract gained 97 cents to $107.43. The European benchmark grade, up 1.7 percent this week, was at a premium of $22.14 to West Texas Intermediate, the U.S. marker.

WTI for January delivery rose as much as $1.03 to $86.92 a barrel in electronic trading on the New York Mercantile Exchange.

China Demand

WTI has declined 12 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, Oklahoma, America’s biggest storage hub and the delivery point for New York futures. That has left it at an average $17.38 below Brent this year, compared with a premium of about 95 cents in the 10 years through 2010. Brent, the benchmark grade for more than half the world’s crude, has risen 1.4 percent this year.

Oil in New York has technical support along an upward-sloping trend line on the daily chart, around $85.88 a barrel today, according to data compiled by Bloomberg. Futures yesterday halted their decline after reaching this line, which connects the intraday lows of June and November. Buy orders tend to be clustered near chart support, while losses may accelerate with a sustained drop below it.

Tax Deal

The December purchasing managers index by HSBC and Markit follows a reading of 50.5 in November, which was the first expansion in 13 months. China will consume 9.9 million barrels a day of oil, 115,000 more than earlier projected, in the final three months of this year, the International Energy Agency said in its Dec. 12 monthly report.

“The latest PMI, slightly ahead of the market expectation, suggests that China is maintaining the economic recovery momentum,” said Gordon Kwan, the head of regional energy research for Mirae Assets Securities Ltd. in Hong Kong who predicts WTI will average $95 a barrel next year. “Improved economic headlines from China will provide firm support to oil prices in 2013.”

China’s apparent oil demand climbed 9.9 percent in November from a year earlier to 10.5 million barrels a day, according to data compiled by Bloomberg. Net crude imports rose to the highest level in six months in November and Chinese refineries processed more than 10 million barrels a day for the first time, government data showed this week.

Oil may drop next week in New York after the White House and congressional officials said no progress had been made on federal budget talks, according to a Bloomberg survey. Twelve of 31 analysts and traders, or 39 percent, forecast crude will decrease through Dec. 21. Eight respondents, or 26 percent, predicted a gain.

WTI fell 1 percent yesterday as Democratic and Republican lawmakers expressed renewed pessimism about the prospect of reaching a deal before more than $600 billion in automatic tax rises and spending cuts known as the fiscal cliff start in January.

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