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| Spending may push oil higher |
| Margot Habiby / Oct 05, 2009, 00:48 IST |
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While job losses have a dampening effect, consumer spending and talks with Iran on nuclear programme could push crude oil prices higher.
Crude oil rose to the highest price in a week as an increase in consumer spending boosted speculation that the economy is rebounding from the worst recession since the Great Depression. Oil gained as purchases by US consumers climbed in August by the most since 2001, indicating the biggest part of the economy is start to recover. Oil rallied the most since April yesterday on a report showing gasoline supplies fell last week.
“The big increase in gasoline deliveries is making people think demand may be recovering, even though the economy isn’t that great, and that maybe consumer spending is increasing,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Crude oil for November delivery rose 21 cents, or 0.3 per cent, to $70.82 a barrel on the New York Mercantile Exchange (Nymex). It closed at the highest level since September 22. Crude is currently trading at 69.85 on Nymex. Futures are up 59 per cent this year. Earlier, oil fell as much as 2.1 per cent, following declines in the equities markets.
The 1.3 per cent increase in consumer purchases was larger than forecast and followed a 0.3 per cent gain in the prior month that was bigger than previously estimated, Commerce Department figures showed . Incomes climbed 0.2 per cent for a second month and inflation decelerated.
Crude rose for “no reason other than the fact that the market has turned,” said Stephen Schork, president of consultant Schork Group in Villanova, Pennsylvania. “The skew is to the upside.”
Gasoline supplies
US gasoline inventories dropped 1.66 million barrels, or 0.8 per cent, to 211.5 million last week, the Energy Department said. Stockpiles were forecast to rise 1 million barrels, based on the median of estimates by 17 analysts in a Bloomberg News survey.
“Some traders are uncertain as to why the market rallied as strongly as it did yesterday on the inventory data,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures in New York. “The data certainly wasn’t as bullish as the reaction we got in the market.”
Crude supplies climbed by 2.8 million barrels to 338.4 million, the report showed, more than analysts were estimating. US oil inventories were 10 per cent above the five-year average, according to the Energy Department.
Oil has traded in a range of $65 to $75 a barrel since July 31.
Break out
“The market expects it to break out,” said Edward Morse, head of economic research at LCM Commodities in New York, in an interview on Bloomberg Television. “The problem is the market is split as to whether it’ll break out above or below. I think the probabilities are we’re going to stay in this range for a while, but by the time we get into winter, the pressure is going to be on the downside, not the upside.”
The Standard & Poor’s 500 Index dropped 2.6 percent to 1,029.85, and the Dow Jones Industrial Average fell 203 points, or 2.1 percent, to 9,509.28.
The dollar also strengthened the most in a month, reducing the appeal of commodities as an alternative investment. The US currency rose 0.7 percent to $1.4539 per euro in New York from $1.464 yesterday. Earlier, it touched $1.4517.
The number of Americans filing first-time claims for jobless benefits rose more than forecast last week, a sign companies are still cutting workers as the economy pulls out of the recession.
Manufacturing data
US manufacturing expanded last month at a slower pace than anticipated by economists, according to a report from the Institute of Supply Management. The Tempe, Arizona-based group’s factory gauge decreased to 52.6 from 52.9 in August. Fifty is the dividing line between expansion and contraction.
The Organisation of Petroleum Exporting Countries trimmed production for a second consecutive month, led by declines in Iraq, Saudi Arabia and Angola, a Bloomberg News survey showed. OPEC is implementing a record supply cut announced last year.
Production averaged 28.395 million barrels a day last month, down 50,000 from August, according to the survey of oil companies, producers and analysts.
“This confirms that OPEC is going to continue to hold the line,” said Mike Wittner, head of oil research at Societe Generale SA in London. “Broadly steady OPEC output combined with recovering demand will result in the gradual whittling away of the inventory overhang.”
Brent crude oil for November settlement rose 12 cents to $69.19 a barrel on the London-based ICE Futures Europe exchange.
Iran inspections
Iran agreed to allow international inspectors to visit its new nuclear fuel plant within the next two weeks and will meet with negotiators for the US and other leading United Nations powers later this month, European Union Foreign Policy Chief Javier Solana said at a news conference outside Geneva. The announcement came after talks between UN powers and Iran on the country’s nuclear programme.
Oil volume in electronic trading on the Nymex was 527,257 contracts in New York. Volume totaled 651,716 contracts the day before, 18 per cent higher than the average over the past three months. Open interest was 1.19 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
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