Tuesday, June 14, 2011

Oil Rises Most in Almost Four Weeks on Retail Sales, Equities


http://www.businessweek.com/news/2011-06-14/oil-rises-most-in-almost-four-weeks-on-retail-sales-equities.html

By Margot Habiby

(Bloomberg) -- Crude oil rose the most in almost four weeks in New York as U.S. retail sales fell less than expected and equities rallied.

Crude climbed 2.1 percent after purchases dropped 0.2 percent in May, less than economists estimated, Commerce Department figures showed in Washington. The Standard & Poor’s 500 Index advanced the most since March. New York-traded oil touched a record discount to London’s Brent.

“The market was bracing itself for something worse,” said Matt Smith, a commodities analyst for Summit Energy Services Inc. in Louisville, Kentucky. “Equities are off to a decent rally. Buying interest is coming into the crude complex.”

Crude for July delivery gained $2.07 to settle at $99.37 a barrel on the New York Mercantile Exchange in the biggest one- day increase since May 18. Futures have climbed 32 percent in the past year.

Brent oil for July delivery rose $1.11, or 0.9 percent, to $120.21 a barrel on the London-based ICE Futures Europe exchange. The front-month European benchmark contract was at a premium of $20.84 to U.S. futures after reaching a record $22.79 earlier today.

U.S. retail sales fell last month for the first time since June 2010. The decline was less than the median forecast for a 0.5 percent drop in a Bloomberg News survey of economists, as consumers weathered elevated gasoline costs, the Commerce Department figures indicated.

Wholesale Costs

The higher prices for fuel boosted wholesale costs in the U.S., which rose more than forecast in May, according to a Labor Department report today. The 0.2 percent increase in the producer-price index compared with the 0.1 percent median estimate of economists in a Bloomberg survey.

Oil prices, which climbed to a 32-month high of $114.83 a barrel in May in New York, are “hurting” the global economy and may stall its recovery, said Fatih Birol, chief economist at the International Energy Agency.

The S&P 500 index rose 1.5 percent to 1,290.42, the biggest one-day rally since March 3. The Dow Jones Industrial Average gained 152.16 points, or 1.3 percent, to 12,105.13.

The dollar fell 0.4 percent to $1.4476 per euro at 2:30 p.m. in New York. A weaker dollar boosts the appeal of commodities as an alternative investment.

Oil declined as much as 0.8 percent earlier today as China, the world’s largest energy user, ordered lenders to set aside more cash as reserves after inflation accelerated to the fastest pace in almost three years.

“We remain under pressure with the economic data being what it is,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The market rallied off the economic data, but the Chinese are continuing on their tightening pace.”

Chinese Consumption

China’s Communist Party is seeking to tame inflation and sustain growth after riots this month by migrant workers in the manufacturing hub of Guangdong. The central bank has raised interest rates four times since October to cool the economy.

Chinese refiners processed 38.5 million metric tons of crude in May, 6 percent more than a year earlier, the China Federation of Logistics and Purchasing said today. Gasoline output climbed 3.6 percent and diesel production rose 8.2 percent. China uses more oil than any country except the U.S.

“The Chinese economy in terms of year-on-year GDP growth is still going to be a steamroller,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. “The question is how big.”

U.S. Supplies

U.S. crude inventories probably decreased 1.8 million barrels to 367 million, according to a Bloomberg News survey of 13 analysts before an Energy Department report tomorrow. Supplies fell to a five-week low in the prior period.

U.S. gasoline stockpiles probably increased for a sixth week last week, gaining 1.05 million barrels to 215.5 million, the poll showed. Demand for gasoline tumbled 2.8 percent to 9.16 million barrels a day in the week ended June 3, the department reported last week. It was the biggest decline since the seven days ended March 11.

Gasoline for July delivery gained 6.78 cents, or 2.3 percent, to $3.0646 a gallon on the Nymex, the highest settlement price since May 31.

Oil in New York is likely to remain in a “consolidation range” of $95 to $105 a barrel, based on technical charts, according to The Schork Group Inc.

A breach of yesterday’s low of $96.13 a barrel may indicate prices will fall to $95.68 and $94.06, said Stephen Schork, president of the consultant in Villanova, Pennsylvania. A recovery to $98.10 will “clear a path” to $98.92 and $100.54, he said.

Oil futures in New York have traded between $95 and $105 since May 9.

Oil volume in electronic trading on the Nymex was 610,626 contracts as of 2:30 p.m. in New York. Volume totaled 816,715 contracts yesterday, 24 percent above the average of the past three months. Open interest was 1.59 million contracts.

--With assistance from Mark Shenk in New York, Grant Smith in London and Yee Kai Pin in Singapore. Editors: Joe Link, Charlotte Porter

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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