BLBG:Crude Advances on U.S. Economic Growth, Deal to Stem European Debt Crisis
Oil rose to the highest level in almost three months as data showed the U.S. economy grew at the fastest pace in a year and as European leaders reached a deal to contain the region’s debt crisis.
Crude climbed for the fourth time in five days after the Commerce Department reported gross domestic product increased 2.5 percent in the third quarter. European leaders persuaded bondholders to accept 50 percent writedowns on Greek debt and boosted a rescue fund to 1 trillion euros ($1.4 trillion).
“These two reports in concert are likely to engender significant optimism,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The most important thing is that some confidence in the economy is restored.”
Crude for December delivery rose $3.76, or 4.2 percent, to $93.96 a barrel on the New York Mercantile Exchange, the highest settlement level since Aug. 1. Prices have gained 2.8 percent this year.
Brent oil for December settlement increased $3.17, or 2.9 percent, to $112.08 a barrel on the London-based ICE Futures Europe exchange.
The growth rate in the U.S. was higher than the 1.3 percent gain in the prior quarter, Commerce Department data showed. Household purchases, the biggest part of the economy, increased 2.4 percent, more than the 1.9 percent median forecast in the Bloomberg survey.
The U.S. is the world’s biggest oil consumer, using 19.1 million barrels a day in 2010, according to the BP Statistical Review.
Strong Earnings
More than half of the companies in the Standard & Poor’s 500 Index have released quarterly results since Oct. 11 and more than three-quarters have beaten the average analyst estimate, data compiled by Bloomberg show. Net income has grown 16 percent for the group on an 11 percent increase in sales.
The S&P index advanced 3.9 percent to 1,290.59. The Dow Jones Industrial Average rose 3.4 percent to 12,272.32. The S&P’s GSCI Index of 24 raw materials increased 3 percent to 657.14.
The oil market “is showing quite bit of resilience and is kind of supported by the economic growth,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The Europeans have secured an agreement and it put a bit of upward momentum in the market.”
Debt Deal
The European agreement, which came after a 10-hour meeting in Brussels, included a recapitalization of European banks and a potentially bigger role for the International Monetary Fund in strengthening the bailout package.
“The countries at least showed the will to find a solution to the debt crisis, and the participation of the banking sector in a debt cut is certainly good news for the market,” said Gerrit Zambo, a trader at Bayerische Landesbank in Munich.
French President Nicolas Sarkozy said the bailout fund will be leveraged by four to five times. Sarkozy also conferred with his Chinese counterpart Hu Jintao as European policy makers seek to build support for the rescue fund.
Oil prices may reach a “pain point” of $130 to $140 a barrel as a third round of quantitative easing weakens the U.S. dollar, Bank of America Corp.’s top commodity analyst said.
West Texas Intermediate on the Nymex will catch up with Brent and the spread will drop to $10-$12, Francisco Blanch, head of commodities research at BofA Merrill Lynch, said at the World Commodities Week conference in London.
WTI-Brent Spread
The spread between WTI and Brent was at $18.12 today. It reached a record high of $27.88 on Oct. 14.
The euro gained 2.2 percent against the dollar to $1.4212. The dollar index, which tracks the U.S. currency against six major peers including the euro and the yen, slid 1.8 percent to 74.863.
A weaker dollar raised crude’s appeal as an alternative investment.
Crude in New York has technical support along the 100-day moving average at $89.78 a barrel, close to where prices stopped falling yesterday, according to data compiled by Bloomberg. Futures have resistance along the 200-day moving average at $94.76 today. That’s near where futures halted their advance on Oct. 25 after reaching a 12-week high.
Oil volume in electronic trading on the Nymex was 596,982 contracts as of 3:17 p.m. in New York. Volume totaled 788,732 contracts yesterday, 13 percent above the three-month average. Open interest was 1.38 million contracts.
To contact the reporters on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net
