Oil Completes Longest Run of Weekly Gains Since 2004

Oil capped the longest stretch of weekly advances in more than eight years after reports showed that U.S. hiring and manufacturing expanded last month.

Futures climbed 0.3 percent after the Labor Department said payrolls rose 157,000 in January and the Institute for Supply Management’s U.S. factory index reached a nine-month high. The Dow Jones Industrial Average gained 1 percent. Brent oil’s premium to crude traded in New York widened because of limits on a pipeline linking the Midwest to the Gulf Coast.

“Prices have primarily moved higher on improving perceptions about the economy,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “The numbers today show that the economy was a little better than we thought and that’s mildly supportive for both oil and the products.”

West Texas Intermediate oil for March delivery rose 28 cents to settle at $97.77 a barrel on the New York Mercantile Exchange. Trading at 3:21 p.m. was 65 percent above the 100-day average for the time of day. The weekly gain of 2 percent is the eighth in a row, matching a streak that ended in August 2004.

Brent oil for March delivery increased $1.21, or 1 percent, to $116.76 a barrel on the London-based ICE Futures Europe exchange, the highest settlement since Sept. 13. Trading was 41 percent higher than the 100-day average.

The European benchmark grade’s premium to WTI was $18.99. The spread reached $19.60 earlier, the widest since Jan. 4, after narrowing to $14.41 in intraday trading on Jan. 17.

Upward Revisions

The January increase in payrolls follows a revised 196,000 advance in the prior month and a 247,000 surge in November, government figures showed today in Washington.

The ISM index rose to 53.1 in January from 50.2 a month earlier, the Tempe, Arizona-based group said today. Economists surveyed by Bloomberg projected a reading of 50.7 for January, according to the median of 86 forecasts.

The Dow climbed above 14,000 for the first time since 2007 while the Standard & Poor’s 500 Index gained 1 percent. The dollar fell as much as 1 percent against the euro. A weaker U.S. currency bolsters the appeal of dollar-denominated commodities as an investment.

The spread between the U.S. and European benchmark grades widened after Enterprise Product Partners LP said yesterday that restrictions at the Jones Creek terminal in Texas will limit flows on the Seaway pipeline that links the Midwest to the Gulf Coast until late 2013.

The pipeline began carrying crude to the Houston area from Cushing, Oklahoma, last month after the flow direction was reversed. The Brent premium to WTI narrowed on speculation the reversal would relieve a glut in the central U.S.

‘Hurting’ WTI

“The realization that the Seaway reversal isn’t the answer to the backlog of supply in the central U.S. is hurting the WTI price,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “There was a lot of optimism, which has quickly dissipated.”

Increasing oil output in the U.S. and Canada and the lack of outlets has bolstered inventories at Cushing, the delivery point for WTI. Supplies at the hub rose 284,000 barrels to 51.7 million last week, the Energy Information Administration said Jan. 30, down from the record 51.9 million Jan. 11.

“It looks like the Seaway pipeline restart is not going to happen as quickly as people thought and we still have that glut situation,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “There is concern that supply is going to back up.”

Technical Factors

Oil’s rally in New York may accelerate after the formation of a bullish technical formation known as a “golden cross.” The 50-day moving average now trades at a premium to the 200-day indicator, according to data compiled by Bloomberg. Investors typically buy contracts when a moving average rises over a longer-term one.

“I’m optimistic that we’ll continue to move higher,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We got to a golden cross formation yesterday when the 50- and 200-day moving averages crossed, which is a bullish indicator.”

Crude may also gain strength if prices breach a four-month high of $98.24 a barrel touched on Jan. 30, Yawger said. Prearranged orders to buy oil at specific prices, known as stops, will be triggered if futures exceed that level, he said.

“It looks like we will test Wednesday’s high of $98.24,” Yawger said. “Once we break through that level, stops will be triggered and length will jump in.”

Geopolitical Risk

Oil may increase next week as instability in the Middle East and North Africa bolsters concern that shipments will be disrupted, a Bloomberg survey showed. Eighteen of 43 analysts, or 42 percent, forecast an increase. Sixteen respondents, or 37 percent, predicted a decline and nine forecast little change.

Electronic trading volume on the Nymex was 731,524 contracts as of 3:15 p.m. It totaled 672,684 contracts yesterday, 32 percent above the three-month average. Open interest was 1.57 million, the highest level since Nov. 12.