Crude climbed for a second day in New York on speculation a report tomorrow will show stockpiles dropped in the U.S., the biggest oil-consuming country. Futures increased as much as 2 percent before the Energy Department report that may show supplies declined 3 million barrels last week because of storms in the Gulf of Mexico. Oil also rose after German Chancellor Angela Merkel said she’s confident Europe will find a solution for Finland’s objections to Greece’s bailout. “We are probably going to see a big drop in tomorrow’s report because of Tropical Storm Lee and the remnants of Hurricane Irene,” said Phil Flynn, vice president of research at PFGBest in Chicago. “There’s also talk that the Europeans will announce new ideas for the bailout for Greece. Between the two, the oil market should experience smooth sailing today.” Crude oil for October delivery advanced 76 cents, or 0.9 percent, to $88.95 a barrel at 11:25 a.m. on the New York Mercantile Exchange. Prices have increased 15 percent in the past year. Brent oil for October settlement declined 61 cents, or 0.5 percent, to $111.64 a barrel on the London-based ICE Futures Europe Exchange. Yesterday the contract dropped to $110.42, the lowest intraday price since Sept. 6. The European benchmark contract’s premium to U.S. futures narrowed to $22.69 from $24.06 yesterday and the record of $26.87 on Sept. 6, based on settlement prices. The spread dropped to $22.26 in intraday trading, the lowest level since Aug. 17. U.S. Stockpiles The Energy Department may say crude inventories dropped to 350.1 million barrels last week, according to the median of 13 analyst estimates in a Bloomberg News survey. Gasoline supplies probably fell 500,000 barrels to 208.3 million, the survey showed. The industry-funded American Petroleum Institute will release its own data today. Output in the Gulf of Mexico, which accounts for 27 percent of U.S. supply, was cut 61 percent last week after Tropical Storm Lee shut production platforms. Oil in London fell after the International Energy Agency reduced its estimate of 2012 global oil demand by 400,000 barrels a day and for 2011 by 200,000. Worldwide demand will rise by 1.2 percent to 89.3 million barrels a day this year and by 1.6 percent to 90.7 million next year. “The IEA cut its demand forecast, which is very interesting,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “it shouldn’t have been much of a surprise because of the negative economic news we’ve had.” ‘Long and Difficult’ The full resumption of Libyan exports following the ouster of Muammar Qaddafi will be “long and difficult,” the Paris- based agency said in a monthly report. The IEA is an energy policy adviser to 28 industrialized nations including the U.S., Japan and Germany. Merkel said she’s “very optimistic” that Finland’s demands for special collateral as part of the Greek bailout package will be met within the parameters of measures agreed by euro-area leaders. Merkel spoke in Berlin today after meeting with Finnish Prime Minister Jyrki Katainen. Katainen said Sept. 7 that his country may not contribute to a second Greek bailout package if demands for collateral in exchange for new loans aren’t met. Finland is at the center of a collateral dispute that threatens to stall Greece’s second rescue package and exacerbate Europe’s debt crisis. Merkel said that Greece is taking the right steps to get its next bailout payment, warning against allowing a Greek default because of the risk of contagion for other countries. An “uncontrolled insolvency” would further roil markets spooked by the prospect of a Greek default, she told Berlin-based broadcaster Inforadio. ‘Hair Trigger’ Markets “These markets are on a hair trigger,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “Every rumor coming out of Europe has an impact because nobody knows how the euro crisis will be resolved. It’s clear that without further help Greece is toast.” Italian officials held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian official said yesterday. Finance Minister Giulio Tremonti met with Chinese officials in Rome earlier this month, his spokesman Filippo Pepe said by phone today. Italy joins Spain, Greece, Portugal and investment bank Morgan Stanley among distressed borrowers that have turned to China since 2007. To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net. To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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