Oil Rises on Manufacturing Data Amid Middle East Tension

West Texas Intermediate crude rose for the fifth time in six days on signs of growth and concern than protests in Egypt will spread. WTI’s discount to Brent narrowed to less than $5 a barrel for the first time since 2011.

Crude gained 1.5 percent as U.S. manufacturing rebounded last month and euro-area manufacturing output contracted less than estimated. Egypt’s military issued a 48-hour ultimatum for political leaders to find a solution to the country’s crisis, warning the demands of the people can’t be ignored.

“We are seeing signs of growth in the U.S. and it’s good for oil demand,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We did get some strong data out of Europe. The protest in Egypt is making people concerned about oil supplies.”

WTI for August delivery advanced $1.43 to $97.99 a barrel on the New York Mercantile Exchange, the highest settlement since June 19. The volume of all futures traded was 21 percent above the 100-day average at 2:34 p.m.

Brent for August delivery increased 84 cents, or 0.8 percent, to settle at $103 a barrel on the London-based ICE Futures Europe exchange. Volume was 3.8 percent below the 100-day average. The European benchmark’s premium to WTI fell as low as $4.77 and ended the day at $5.01, the narrowest based on settlement prices since Jan. 4, 2011.

Manufacturing Rebound

U.S. manufacturing rebounded last month from its largest contraction since 2009, the Institute for Supply Management’s index showed. The gauge increased to 50.9 from 49 in May. The median forecast of economists surveyed by Bloomberg called for the measure to rise to 50.5. A reading of 50 is the dividing line between expansion and contraction.

“The number is not bad,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “The market overall remains bullish. There are still not a lot of other places to put your money in.”

A gauge of manufacturing in the 17-nation euro area increased to 48.8 last month from 48.3 in May, London-based Markit Economics said.

The U.S. and European Union used 35 percent of world’s oil in 2012, according to BP Plc’s Statistical Review of World Energy.

‘Road Map’

Egypt’s armed forces said in a statement that the demands of the people can’t be ignored and it would issue its own “road map” if the deadline is not met, according to a statement read on state television.

Hundreds of thousands of President Mohamed Mursi’s opponents took to the streets nationwide yesterday in Egypt, the largest Arab nation, marking the end of the Islamist leader’s first year in office with demands that he quit.

Almost 18,000 ships transited Egypt’s Suez Canal in 2011 in both directions, of which 20 percent were petroleum tankers, according to the Energy Information Administration.

“The price gain is tied to what’s happening in Egypt, not that it is a major oil exporter, but this is setting up the conditions for an arc of unrest,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion.

The protests come amid continuous armed conflict in Syria, raising concern that tensions may spread to larger oil-exporting nations in the Middle East, which collectively accounts for 34 percent of world oil supply.

Syria borders Iraq and is near Iran, countries that together hold almost a fifth of the production capacity of the Organization of Petroleum Exporting Countries, according to Bloomberg estimates.

Buzzard Field

North Sea production at the Buzzard field operated by Nexen Inc. is said to be running at rates as much as 25 percent less than normal, according to two people with knowledge of the matter.

Buzzard is the largest contributor to the Forties crude grade, which sets the value of Dated Brent, the benchmark used to price more than half of the world’s crude.

“The protests in Egypt and the shutdown of the Buzzard field are supporting factors but not the primary one because then Brent would be leading the way,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “WTI is outperforming Brent, which is a sign that we’re moving on U.S. supply fundamentals.”

Implied volatility for at-the-money WTI options expiring in August was 19.4 percent, down from 19.7 percent on June 28, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 617,242 contracts as of 3:12 p.m. It totaled 565,994 contracts on June 28, the lowest level since June 18. Open interest was 1.82 million contracts.

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