BLBG: Oil Gains on Report That U.S. Economy Shrank Less Than Forecast
Crude oil rose in New York after a government report showed that the U.S. economy contracted less than forecast in the fourth quarter, signaling energy demand may strengthen.
Oil gained as much as 4.8 percent, and gasoline reached an 11-week high after the Commerce Department said gross domestic product shrank at a 3.8 percent annual pace, less than the 5.5 percent forecast. The International Energy Agency and OPEC have both trimmed global demand forecasts, citing economic factors.
“The biggest issue for the oil and gas markets is what’s going on with demand,” said Roger Read, an analyst at Natixis Bleichroeder Inc. in Houston. “Anything that leads you to believe underlying demand is improving or better than expected would be positive for oil and gas prices.”
Crude oil for March delivery rose 24 cents, or 0.6 percent, to settle at $41.68 a barrel at 2:46 p.m. on the New York Mercantile Exchange. Prices fell 6.5 percent in January, stretching crude’s decline to seven consecutive months, the longest on a monthly basis since Nymex trading began in 1983, according to exchange data.
Oil is down 72 percent from a July 11 record of $147.27 a barrel as the U.S., Europe and Japan sank deeper into recessions. Prices fell 10 percent this week.
Labor unrest and seasonal refinery maintenance have also bolstered prices. The United Steelworkers union rejected the latest contract offer from Royal Dutch Shell Plc covering workers at U.S. refineries with almost two-thirds of the country’s capacity. The current agreement expires Feb. 1.
‘Difficult’ Negotiations
“We are having difficult times in negotiations, and the talks are progressing slowly,” Lynne Baker, a spokeswoman for the union, said in an e-mail. “We will continue to meet, and we will meet throughout the day today.”
Gasoline for February delivery rose 3.8 cents, or 3.1 percent, to $1.2689 a gallon on the Nymex, the highest closing price since Nov. 13. The February contract expired today. The March futures contract gained 2.53 cents, or 2 percent, to $1.2687 a gallon.
“The fact is, if gasoline and heating oil move nicely higher, crude can be firm because they will probably keep the profits on the refining margins up,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut.
The profit margin, or crack spread, for making three barrels of crude into two of gasoline and one of heating oil, based on futures prices, rose 4.3 percent to $13.79 a barrel at 4:24 p.m. The spread was $5.325 a barrel on Dec. 31.
“The world can withstand a strike much more so than it would have three years ago, so their bargaining position is a little weakened,” Natixis’s Read said. “They’re asking for a wage increase at a time when people are getting laid off.”
Adding Crude
He noted that when refineries shut down, it adds crude supply to the market, so a strike and seasonal maintenance could be bearish for oil.
In the U.K., workers at Ineos Group Holdings Plc’s Grangemouth refinery in Scotland walked out as protests against foreign employees at Total SA’s Lindsey refinery spread, the BBC reported today. As many as 300 people took part in the Grangemouth action, the report said.
Brent crude oil for March settlement rose 48 cents, or 1.1 percent, to $45.88 a barrel on London’s ICE Futures Europe exchange.
Volume Drops
Volume in electronic trading on the New York exchange was 367,677 contracts as of 3:15 p.m. Trading volume totaled 426,795 contracts yesterday, down 13 percent from the average over the past three months. Open interest yesterday was 1.24 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
OPEC won’t hesitate to cut output further if prices keep falling, Secretary General Abdalla el-Badri said yesterday. The Organization of Petroleum Exporting Countries, responsible for about 40 percent of world oil supplies, has cut crude output three times since September to halt the plunge in oil prices.
“The oil markets this year are really all about contracting oil demand versus OPEC cuts,” said Mike Wittner, head of oil research at Societe Generale SA in London. “If there is a sign that the GDP was not as bad as people thought, the next step is that oil demand maybe wasn’t as bad as people thought.”
OPEC will load 23.55 million barrels a day of oil in the four weeks ending Feb. 14, down from 23.71 million barrels in the four weeks to Jan. 17, industry consultant Oil Movements said in a report yesterday.
“Over the short term, the next month or two, we see crude oil prices pushing to the $50-$55 level,” said Edward Meir, an analyst at MF Global in Connecticut. “The markets seem to be giving OPEC the benefit of the doubt, which explains why prices have been holding above the $40 mark.”
Nigerian Unrest
Nigeria’s main militant group in the Niger River delta said it was calling off a four-month cease-fire and would start attacking Africa’s biggest oil industry beginning tomorrow. The Movement for the Emancipation of the Niger Delta, MEND, said in a statement today it was ending the cease-fire because Nigerian military forces attacked the base of an allied militant group.
MEND will start “a sweeping assault starting from Rivers state that will change the face of oil and gas exports from Nigeria,” Jomo Gbomo, the group’s spokesman, said in an e-mail. Nigeria, OPEC’s seventh-largest oil producer, pumped about 1.9 million barrels a day last month, according to Bloomberg data.
