Oil Futures Advance After U.S. Economic Growth Surges

Oil advanced after economic growth in the U.S., the world’s biggest crude-consuming nation, surged at the fastest pace in more than a decade in the third quarter.

West Texas Intermediate rose 3.4 percent in New York, while Brent climbed 2.3 percent in London. Gross domestic product grew at a 5 percent annual rate from July through September, the biggest increase since 2003, revised figures from the Commerce Department showed today. Futures pared gains as a gauge of the dollar climbed to a five-year high.

Oil is set for the biggest annual loss since 2008 amid the highest U.S. output in more than three decades and signs of slowing global demand growth. U.S. crude supplies probably fell for a second week, a Bloomberg survey showed before government data tomorrow. Saudi Arabia, OPEC’s biggest producer, doesn’t plan to pump less “whatever the price is,” Oil Minister Ali Al-Naimi told the Middle East Economic Survey yesterday.

“This good economic news is a positive sign for demand as we are about to head into the new year,” Adam Wise, who helps run a $6 billion oil and gas bond portfolio as a managing director at John Hancock in Boston, said by phone. “We’re seeing a demand-driven response today.”

WTI, Brent

WTI for February delivery increased $1.86 to settle at $57.12 a barrel on the New York Mercantile Exchange. It was the highest settlement since Dec. 12. The volume of all futures traded was 26 percent below the 100-day average at 4:43 p.m. Futures are down 42 percent this year.

Futures pared gains after the American Petroleum Institute was said to report an increase in U.S. crude supplies. Inventories rose 5.4 million barrels last week, Anthony Headrick and LiveSquawk said on Twitter. Futures traded at $56.57 in electronic trading at 4:42 p.m.

Brent for February settlement gained $1.58, or 2.6 percent, to end the session at $61.69 a barrel on the ICE Futures Europe exchange. It was the highest close since Dec. 11. Volume was 43 percent below the 100-day average. Prices are down 45 percent in 2014. The European benchmark closed at a $4.57 premium to WTI.

Markets in London and New York will be closed on Dec. 25 for Christmas.

Economic Growth

GDP was projected to climb 4.3 percent last quarter, according to the median forecast of 75 economists surveyed by Bloomberg. Consumer spending is poised to accelerate in 2015 as more employment and lower gasoline prices boost household confidence and buying power, one reason why the Federal Reserve will probably raise interest rates next year.

“We had a strong GDP number today and that implies a certain amount of demand that we weren’t looking for previously,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “We’re getting some headwinds from the dollar, which is at multiyear highs, but I think the strong GDP will keep us higher.”

Equities and the dollar climbed on the better-than-projected economic figures. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, rose 0.4 percent to 1,132.18 after touching 1,132.71, the highest on a closing basis since March 2009. A stronger U.S. currency reduces the appeal of commodities as a store of value.

Surging Production

U.S. crude production expanded to 9.14 million barrels a day through Dec. 12, the highest level in Energy Information Administration weekly data that started in January 1983.

“A supply response is occurring but it will take time before there’s an impact,” Wise said. “There have been significant cuts in capital expenditures that will have an impact on production in the future.”

Crude inventories probably shrank by 2.5 million barrels to 377.4 million last week, according to the median estimate in a Bloomberg survey of nine analysts before tomorrow’s EIA report. Gasoline supplies probably rose 1 million barrels in the week ended Dec. 19, while stockpiles of distillate fuel dropped 1 million barrels.

“Tomorrow, everything will be at the mercy of inventories,” Yawger said.

Fuel Prices

Gasoline futures increased 3.54 cents, or 2.3 percent, to close at $1.5704 a gallon in New York. It was the biggest gain since Oct. 23. Diesel rose 3.93 cents, or 2 percent, to settle at $1.9907.

Regular gasoline at U.S. pumps fell to the lowest level since May 2010. The average retail price slipped 1.8 cents to $2.376 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

The Organization of Petroleum Exporting Countries’ decision on Nov. 27 to maintain its output ceiling was “part of its effort to defend its market share,” Iraqi Oil Minister Adel Abdul Mahdi said in an interview yesterday. Production cuts to support prices in 2008 didn’t prevent a decline in its market share, he said. Iraq plans to boost production to 4 million barrels a day next year as the OPEC refuses to cede market position, Mahdi said in the interview.

OPEC Target

“The markets were blinded by the 5 percent increase in GDP,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The market remains under a great deal of pressure.”

OPEC pumped 30.56 million barrels a day in November, exceeding its collective target of 30 million for a sixth straight month, a separate Bloomberg survey of companies, producers and analysts shows.

Saudi Arabia doesn’t intend to cut output, Al-Naimi said in the interview with MEES. “Whether it goes down to $20, $40, $50, $60, it is irrelevant,” he was cited as saying. The nation pumped 9.65 million barrels a day last month.

“It paints a very pessimistic picture for oil prices, and what it means for non-OPEC supply,” Gareth Lewis-Davies, an analyst at BNP Paribas SA in London, said by phone, referring to Al-Naimi’s comments.