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Gasoline Advances as Economic Gains Signal Higher Fuel Demand

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Aug. 1 (Bloomberg) -- Gasoline advanced along with crude oil as gains for the U.S. economy and Chinese manufacturing indicated fuel demand may grow.

Futures rose 1.1 percent and West Texas Intermediate crude reached a nine-day high. U.S. jobless claims fell last week to a five-year low, the Labor Department said. China’s Purchasing Manager’s Index increased to 50.2, above the level that indicates expansion. The Federal Reserve said yesterday it would maintain its $85 billion monthly bond buying.

“Gasoline and diesel are being dragged up by the crude market, supported by the economic news and a better-than-expected jobs report,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Gasoline for September delivery rose 3.21 cents to settle at $3.0284 a gallon on the New York Mercantile Exchange. Trading volume was 11 percent below the 100-day average at 3:10 p.m.

Applications for unemployment insurance payments declined by 19,000 to 326,000 in the week ended July 27, the fewest since January 2008, from a revised 345,000 the prior week. The median forecast of 50 economists surveyed by Bloomberg called for 345,000.

Gasoline’s crack spread versus WTI fell $1.51 to $19.30 a barrel as September WTI jumped 2.7 percent to $107.89 a barrel and the U.S. benchmark’s discount to Brent crude narrowed $1.02 to $1.65.

Strong Crude

“It’s because crude is so strong and Brent-WTI has come in,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York.

Gasoline’s premium over Brent narrowed 49 cents to $17.65.

Pump prices, averaged nationwide, climbed 0.3 cent to $3.63 a gallon, Heathrow, Florida-based AAA said today on its website. Prices are 10.9 cents higher than a year ago.

Ultra-low sulfur diesel widened gains after a report that U.S. manufacturing in July expanded at the fastest pace in two years. The Institute for Supply Management’s factory index increased to 55.4 from 50.9 in the prior month, the Tempe, Arizona-based group’s report showed today. Readings above 50 indicate expansion.

“Diesel is more intrinsically tied to economic activity,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “A stronger ISM suggests stronger manufacturing which in turn suggests stronger diesel demand,”

Ultra-low-sulfur diesel for September delivery gained 4.16 cents, or 1.4 percent, to $3.0966 a gallon on trading volume that was 21 percent below the 100-day average.

ULSD’s crack spread versus West Texas Intermediate crude narrowed $1.11 to $22.17 a barrel. The premium over Brent fell 9 cents to $22.17.

To contact the reporter on this story: Barbara Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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