West Texas Intermediate crude climbed to a nine-month high as the Syrian conflict bolstered concern that the flow of supplies from the Middle East may be disrupted and on signs that economic growth is accelerating.
Futures advanced 0.7 percent to the highest settlement since Sept. 14. Russian President Vladimir Putin agreed to sign a statement at the Group of Eight summit calling for the establishment of a “transitional government” in Syria. Reports showed that permits to build single-family homes in the U.S. rose to a five-year high in May. WTI’s discount to Brent oil traded in London shrank to the narrowest level since 2011.
“Geopolitical concerns are on the minds of investors and continue to push prices higher,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “In addition to the tensions in the Middle East, there’s positive economic news. The economic outlook is improving and that’s supportive for oil.”
WTI crude for July delivery increased 67 cents to settle at $98.44 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 11 percent below the 100-day average at 4:34 p.m.
Prices were little changed after the American Petroleum Institute reported that U.S. inventories fell 4.29 million barrels last week to 392 million. The July contract rose 72 cents to $98.49 a barrel at 4:33 p.m. The contract traded at $98.40 before the report was released at 4:30 p.m.
Brent oil for August settlement climbed 55 cents, or 0.5 percent, to end the session at $106 a barrel on the London-based ICE Futures Europe exchange. It was the highest settlement since April 9. Volume for all contracts was 38 percent below the 100-day average. The European benchmark grade shrank to a $7.35 premium to WTI based on August contracts, the narrowest using closing prices since January 2011.
U.S. equities increased for a second day. The Standard & Poor’s 500 Index gained 0.8 percent, and the Dow Jones Industrial Average advanced 0.9 percent.
Backed by Lebanon’s Shiite militia Hezbollah and aid from Iran and Russia, Syrian President Bashar al-Assad’s troops have shifted the momentum of the civil war with an offensive against the rebels. President Barack Obama ratcheted up U.S. support for the opposition last week with a decision to send them arms.
Russian Deputy Foreign Minister Sergei Ryabkov told reporters at the summit in Lough Erne, Northern Ireland, that the G-8 communique on Syria won’t set a deadline for forming a new body with executive powers. Ryabkov said statements from the U.S. and U.K. that the Syrian government had used chemical weapons were “groundless” and warned that providing arms to the Syrian rebels will be a major blow to the chances for peace.
The Middle East accounted for 33 percent of global crude output in 2012, according to BP Plc’s Statistical Review of World Energy. Syrian oil exports, which were never among the highest in the region, have almost completely ended. Syria borders Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries.
Iranian President-elect Hassan Rohani said yesterday that he’ll make the country’s nuclear program more transparent as he seeks to ease tension with the U.S. and reduce “brutal” sanctions. The U.S. and its allies suspect Iran is seeking to build nuclear weapons, while the Islamic republic insists its atomic program is to generate electricity.
Applications to build one-family homes in the U.S. rose 1.3 percent to a 622,000 pace, the fastest since May 2008, the Commerce Department reported today in Washington. Housing starts climbed 6.8 percent to a 914,000 annualized rate.
The cost of living in the U.S. rose less than forecast in May, signaling inflation remains under control. The consumer price index was up 0.1 percent after falling 0.4 percent in April, the Labor Department reported today in Washington. The median forecast of 82 economists surveyed by Bloomberg called for an increase of 0.2 percent.
The lack of inflation gives Federal Reserve policy makers, meeting today and tomorrow in Washington, more leeway to address unemployment as they consider whether to dial down their record monetary stimulus.
“Oil prices are solid,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “Today’s numbers show that we’re looking at modest economic growth without inflation. The Fed won’t have to reign in stimulus since inflation is under control.”
The ZEW Center for European Economic Research in Mannheim, Germany, said its index of German investor and analyst expectations, which aims to predict economic developments six months in advance, increased to 38.5 from 36.4 in May.
The U.S. government will probably report tomorrow that crude supplies fell last week as refineries bolstered operating rates, a Bloomberg survey showed. Stockpiles declined 500,000 barrels, according to the median of 12 analyst estimates in a survey conducted before the release of Energy Information Administration data. Refinery operation rates probably increased 0.5 percentage point to 88 percent.
“The oil market remains vulnerable,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “We have ample supplies and weak demand, which isn’t a good recipe for $100 oil.”
Implied volatility for at-the-money WTI options expiring in August was 18.6 percent, compared with 18.9 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 475,711 contracts as of 4:35 p.m. It totaled 623,501 contracts yesterday, 3 percent above the three-month average. Open interest was 1.86 million contracts, down from the previous session’s record 1.861 million.