Crude Rises as China Pledges Growth Amid Weakening Dollar

West Texas Intermediate crude rose as China’s premier pledged to defend the country’s growth rate and as the dollar weakened against the euro.

Prices gained 0.3 percent after Beijing News said Premier Li Keqiang recently told economists that 7 percent is the “bottom line” for the nation’s pace of expansion. The dollar fell to a one-month low against the euro and U.S. crude inventories slid to the fewest in six months in a Bloomberg survey before a government report tomorrow.

“China is going to lock in 7 percent growth, and it should be supportive for the oil market,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “A lot of trading seems to be dollar related right now.”

WTI for September delivery advanced 29 cents to settle at $107.23 a barrel on the New York Mercantile Exchange. The volume of all futures traded was 9.9 percent below the 100-day average for the time of day at 4:45 p.m. Front-month futures settled at $108.05 on July 19, the highest level since March 19, 2012. Prices have advanced 11 percent this month and are up 17 percent this year.

Futures were little changed after the American Petroleum Institute said that U.S. crude stockpiles dropped 1.44 million barrels last week. The September contract increased 38 cents to $107.32 at 4:45 p.m. in electronic trading on the Nymex.

Brent Futures

Brent for September settlement gained 27 cents, or 0.3 percent, to end the session at $108.42 a barrel on the London-based ICE Futures Europe exchange. Volume was 14 percent below the 100-day average. The European benchmark’s premium to WTI was little changed at $1.19 a barrel from yesterday’s $1.21. WTI rose above Brent on July 19 for the first time since 2010.

Growth at a pace slower than 7 percent won’t be accepted because China needs to achieve a moderately prosperous society by 2020, according to a commentary published July 21 by the official Xinhua News Agency. China is the world’s second-largest oil consuming country, after the U.S.

The dollar fell as much as 0.4 percent to $1.3239 per euro, down from yesterday’s $1.3186. A weaker dollar increases oil’s investment appeal.

U.S. crude stockpiles probably slipped by 2.8 million barrels to 364.2 million last week, the lowest level since January, according to the median of 12 analyst responses in a Bloomberg survey before an Energy Information Administration report tomorrow. Supplies may have decreased for a fourth week, the longest stretch of declines since August.

U.S. Stockpiles

The market is “waiting for the inventory report,” said Jeff Grossman, president of New York-based BRG Brokerage and a New York Mercantile Exchange floor trader.

The industry-funded API collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm, for its weekly survey.

Goldman Sachs Group Inc. forecast WTI’s discount to Brent will grow amid a U.S. Gulf Coast supply glut.

WTI will probably average $8 to $9 a barrel below Brent in 2014 as the U.S. Gulf Coast becomes “increasingly saturated” with light, sweet crude because of shale projects, Goldman Sachs said in an e-mailed report today.

‘Sudden Repositioning’

“A sudden repositioning as the market loses confidence in the current WTI strength could therefore put substantial downside pressure on WTI-Brent spreads over the short run,” Stefan Wieler, a Goldman analyst in New York, said in the report dated yesterday.

The gap between the two benchmarks has narrowed as improved pipeline networks and the use of rail links eased a North American supply glut created by rising production of crude from shale formations. WTI traded at a discount of as much as $23.44 a barrel in February.

Crude fell earlier as half the economists surveyed July 18-22 by Bloomberg said the Federal Reserve will trim monthly bond buying to $65 billion from $85 billion in September. The figure was up from 44 percent in last month’s poll. The central bank will probably halt the asset purchases in the second quarter of next year, according to half of the economists.

“Some people are anticipating that the Fed will cut back on its stimulus and it may be providing a bit of a headwind to the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The spread and the WTI market are a little overextended.”

Implied volatility for at-the-money WTI options expiring in September was 22 percent, compared with 23 percent on yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 512,144 contracts as of 4:45 p.m. It totaled 581,771 contracts yesterday, 12 percent below the three-month average. Open interest was 1.84 million contracts.

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