BLBG: Oil Heads for Biggest Monthly Gain Since 1999 as Asia Rebounds
Oil headed for its biggest monthly gain in a decade as economic indicators from Asia and shrinking crude inventories in the U.S. pointed to a global recovery.
Oil rose to a six-month high above $66 a barrel after India’s economy grew more than expected in the last quarter, while Japan said today that its industrial output climbed the most in at least six years in April. The Organization of Petroleum Exporting Countries predicted stronger demand as it decided yesterday to keep output quotas unchanged.
“While the real economy remains in the deepest part of the recession, people see some hope of things getter better,” said Gerrit Zambo, an oil trader at BayernLB in Munich. “Money from financial investors who don’t want to miss these low prices is coming back into the oil market.”
Crude oil for July delivery rose as much as $1.09, or 1.7 percent, to $66.17 a barrel on the New York Mercantile Exchange. That’s the highest since Nov. 10. It was at $66.16 at 11:58 a.m. in London. Oil has advanced 29 percent in May, the biggest monthly increase since March 1999, when Asia was recovering from the 1997-1998 financial crisis.
U.S. crude inventories declined 5.41 million barrels to 363.1 million last week, the Energy Department said yesterday. It was the biggest drop since September, when hurricanes hit the Gulf of Mexico coast. Analysts expected a drop of 150,000 barrels, according to the median estimate of 12 analysts surveyed by Bloomberg News.
Fragile Fundamentals
The decline left inventories 27 percent higher than the five-year average, up from a 23 percent surplus a week earlier. Stockpiles were the highest since 1990 in the week ended May 1.
“Oil market fundamentals still remain relatively fragile, notwithstanding the gains in the oil price,” said David Moore, a Sydney-based strategist at Commonwealth Bank of Australia.
Refineries operated at 85.1 percent of capacity, up 3.3 percentage points from the previous week, the biggest gain since October, the report showed. Gasoline stockpiles dropped 537,000 barrels to 203.4 million, the lowest since the week ended Dec. 5, according to the report.
Saudi Arabian Oil Minister Ali al-Naimi said OPEC opted not to alter its output targets because “prices are good, the market is in good shape.”
Oil’s rally is driven by improving sentiment about the global economy and isn’t supported by demand, OPEC Secretary General Abdalla el-Badri said today.
Global crude stockpiles remain very high, El-Badri told reporters at a briefing in Vienna. Still, prices may reach $70 to $75 a barrel by the end of the year, partly because speculators are returning to commodity markets, he said.
Asia Recovery
Japan’s factory production climbed 5.2 percent from March, when it gained 1.6 percent, the Trade Ministry said today in Tokyo. The increase was faster than the 3.3 percent expected by economists. Companies said they planned to increase output in May and June as well, the report showed.
India, Asia’s third-largest economy, expanded 5.8 percent in the three months to March 31, led by government spending and construction, the statistics office in New Delhi said today. Economists were expecting a 5 percent increase.
Brent crude for July settlement was $1.04 higher at $65.43 a barrel on London’s ICE Futures Europe exchange at 11:58 a.m. London time.
