Oil Gains as U.S. Home Data Eases Concern on Stimulus

West Texas Intermediate crude climbed the most in two weeks after a drop in purchases of newly built U.S. homes last month bolstered speculation the Federal Reserve will defer tapering stimulus measures.

Futures rose 1.3 percent after government data showed sales of new homes fell by the most in more than three years. Minutes from the Fed’s July policy meeting recorded that members were “broadly comfortable” with curbing bond buying this year if the economy improves. Fed Bank of St. Louis President James Bullard said the bank should pledge not to raise the benchmark interest rate as long as inflation is below 1.5 percent.

“The market rebounded after the release of the pretty-horrific July home numbers,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “The housing data appears to have put fears of a quick end of stimulus to rest. Housing has been one of the stronger sectors of the economy recently.”

WTI crude for October delivery increased $1.39 to settle at $106.42 a barrel on the New York Mercantile Exchange. It was the biggest gain since Aug. 9. Prices fell 1 percent this week. The volume of all futures traded was about 12 percent below the 100-day average at 2:46 p.m.

Brent oil for October settlement advanced $1.14, or 1 percent, to end the session at $111.04 a barrel on the London-based ICE Futures Europe exchange. Trading of futures was 3.4 percent above the 100-day average. The European benchmark crude settled at a $4.62 premium to WTI, down from $4.87 yesterday.

New Homes

Sales of newly built homes fell 13.4 percent to a 394,000 annualized pace in July, Commerce Department figures showed today in Washington. A decrease to 487,000 was projected, according to the median estimate in a Bloomberg survey. Last month’s decline was the biggest since May 2010.

“The housing report was a shocker,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “It’s so poor and it does open up the door to potentially no Fed tapering in September. If that’s the case, you are going to see a bit of a risk-on trading and that’s what is pushing up crude oil.”

Fed officials have been scrutinizing data to determine whether the economy is strong enough to reduce stimulus. Fed Bank of Atlanta President Dennis Lockhart told Bloomberg Television that he wouldn’t rule out a September move to start tapering as long as the economy’s performance justifies it.

Dollar Weakness

Commodities climbed as the dollar weakened. The currency fell as much as 0.4 percent to $1.341 per euro. A declining U.S. currency increases the appeal of dollar-denominated commodities as an investment. The Standard & Poor’s GSCI Index of 24 raw materials gained 0.9 percent.

“The big part of the run seems to be due to the drop in the dollar after the bad housing data,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Commodities across the board got a little bit of a boost. The dollar definitely played into it.”

Futures also rose on signs that European economic growth is accelerating while violence in the Middle East escalates. Euro-area consumer confidence increased more than economists estimated in August, a report from the European Commission in Brussels showed today.

U.K. Growth

U.K. economic growth expanded more than initially estimated in the second quarter. Gross domestic product increased 0.7 percent from the first quarter, the Office for National Statistics said in London today. That’s up from an initial estimate of 0.6 percent published on July 25.

Israel said it bombed a site in Lebanon today in response to the first rocket attack from that country in almost two years, adding to the turmoil gripping the Middle East.

“There’s support from the improving economic outlook in Europe,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The tumult in the Middle East and North Africa continues to raise concerns about supply. The Israeli attack today is a reminder of how volatile the situation is.”

The flare-up along the Israeli-Lebanese border comes at a time of upheaval in the region. Egypt is reeling from the violent aftermath of President Mohamed Mursi’s ouster and more than 100,000 have been killed in Syria’s civil war, according to United Nations estimates.

Explosions near two Sunni Muslim mosques in Lebanon’s northern city of Tripoli during Friday prayers killed at least 29 people and wounded more than 500, the official National News Agency said. The bombings occurred at a time of heightened tensions between Sunni and Shiite communities as the sectarian war in Syria spills into Lebanon.

WTI Outlook

WTI may drop next week on speculation that demand from refineries will slow with the end of the peak-demand summer driving season next month, a Bloomberg survey shows. Twenty of 33 analysts and traders, or 61 percent, forecast futures will decline. Seven respondents projected a gain and six said there would be no change.

Implied volatility for at-the-money WTI options expiring in October was 20.9 percent, down from 21.5 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 481,689 contracts as of 2:46 p.m. It totaled 457,856 contracts yesterday, 29 percent below the three-month average. Open interest was 1.82 million contracts.

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