BLBG: Oil Rises to a Five-Week High as Consumer Confidence Improves
Crude oil rose to a five-week high as U.S. consumer confidence improved and manufacturing shrank at the slowest pace in seven months, signaling that the recession may end later this year.
Oil gained 4.1 percent after a report showed that confidence in April climbed to its highest level since before the collapse of credit late last year. Factory orders and production are steadying after plunging last year as companies cut stockpiles. Prices were down earlier as U.S. supplies rose to the highest since 1990 and fuel demand dropped.
“Like a lot of markets we are rising on hope,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Some people think that the rise in consumer confidence will result in increased petroleum demand.”
Crude oil for June delivery climbed $2.08 to $53.20 a barrel at 2:55 p.m. on the New York Mercantile Exchange, the highest settlement since March 26. Prices are up 3.2 percent this week and 19 percent this year.
The Reuters/University of Michigan final index of consumer sentiment rose to 65.1, the second straight gain, from 57.3 in March. The index reached a three-decade low of 55.3 in November. The Institute for Supply Management’s factory index increased to 40.1 last month, higher than forecast, from 36.3 in March. Readings less than 50 signal a contraction.
“Traders are looking at poor statistics and looking at them as bullish because they are better than a month ago,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “These moves are unsustainable because the fundamentals of the market are poor.”
Chinese Manufacturing
China’s manufacturing expanded for a second month as stimulus spending stoked a recovery in the world’s third-biggest economy. The Purchasing Manager’s Index rose to a seasonally adjusted 53.5 in April from 52.4 in March, the Federation of Logistics and Purchasing said today in Beijing in an e-mailed statement. A reading above 50 indicates an expansion.
“The demand and inventory numbers are poor but they are backward-looking,” said Nauman Barakat, senior vice president of energy at Macquarie Futures USA Inc. in New York. “The forward-looking economic news is more bullish. The Chinese manufacturing numbers are strong and OPEC continues to cut.”
The Organization of Petroleum Exporting Countries agreed at three meetings last year that the 11 members with quotas would cut output by 4.2 million barrels a day to 24.845 million. OPEC will meet in Vienna on May 28 to review production targets.
OPEC Output Drops
OPEC oil output averaged 27.58 million barrels a day last month, down 75,000 from March, according to a Bloomberg News survey. The 11 OPEC members with quotas, all except Iraq, pumped 25.255 million barrels a day, 410,000 more than their target of 24.845 million.
“We have an inventory overhang which is quite impressive and an incredible build of oil at sea,” said Harry Tchilinguirian, senior oil market analyst at BNP Paribas SA in London. “We may have a correction from here.”
Crude-oil supplies rose 4.05 million barrels to 374.7 million last week, according to an Energy Department report earlier this week. The gain left inventories at the highest level since September 1990 and 15 percent above the five-year average for the period.
“Oil is surprisingly strong with what inventories are doing in the U.S.,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “There is a financial-market component to the strength we are seeing. When you look at other asset classes, oil appears to be a good bet.”
Gasoline Inventories
Gasoline supplies declined 4.7 million barrels to 212.6 million last week, the biggest reduction since September, the report showed. Refineries operated at 82.7 percent of capacity, down 0.8 percentage point from the prior week.
“The crude-oil market is probably gaining strength from gasoline today,” Mueller said. “Gasoline supplies had a big inventory decline last week. Refiners are going to have to step up and increase operating rates before demand picks up this summer.”
The peak U.S. gasoline-consumption period lasts from the Memorial Day weekend in late May to the Labor Day holiday in early September.
Gasoline futures for June delivery climbed 5.16 cents, or 3.5 percent, to $1.5174 a gallon in New York, the highest settlement since March 26.
Fuel Demand
Oil in New York has tumbled 64 percent from a record $147.27 in July as the recession in major consuming countries curbed fuel demand. U.S. fuel use in the first quarter averaged 19.2 million barrels a day, the lowest for the period in 11 years, the American Petroleum Institute said in a monthly report on April 16.
Brent crude oil for June settlement rose $2.05, or 4 percent, to end the session at $52.85 on London’s ICE Futures Europe exchange.
Crude oil volume in electronic trading on the Nymex was 364,239 contracts as of 3:01 p.m. in New York. Volume totaled 360,157 contracts yesterday, 32 percent lower than the average over the past three months. Open interest was 1.17 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
