PT: Oil rises for the first time in six days as U.S. equities gain
NEW YORK
Petroleumworld.com, Jan 20, 2010
Crude oil rose for the first time in six days as U.S. equities, led by health companies, climbed on speculation Republicans will block an industry overhaul.
Oil rebounded after the Standard & Poor’s 500 Index gained the most in two weeks. Hedge-fund managers and other large speculators increased their bets on strengthening crude oil prices to the highest level since at least 1983, U.S. Commodity Futures Trading Commission data on Jan. 15 showed.
“Crude oil is rising because the S&P is up,” said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. “There’s a good bit of cherry-picking going on here. Those who are long, which was a substantial number last week, will take any justification to send prices higher.”
Crude oil for February delivery rose $1.02, or 1.3 percent, to settle at $79.02 a barrel on the New York Mercantile Exchange. Oil touched $76.76, the lowest intraday price since Dec. 24. February futures expire tomorrow. The more-active March contract increased 95 cents, or 1.2 percent, to end the session at $79.32.
Yesterday’s trades were combined with today’s because of the Martin Luther King Jr. holiday in the U.S.
The Standard & Poor’s 500 Index gained 1 percent to 1,147.66. An index of health-care companies in the S&P 500 led the advance with a 1.8 percent rally.
U.S. Democrats face the possibility of losing a Senate seat held by the late Edward Kennedy as voters in Massachusetts go to the polls. A loss could cost them the 60 votes needed to help pass a health-care overhaul.
Economic Worries
“Once the stock market firmed up a bit you saw oil rise from its lows,” said Phil Flynn, vice president of research at PFGBest in Chicago. “We’re back to worrying about the economy. The oil market is following anything that gives us an idea of where the economy is going.”
Speculative net-long positions, or the difference between orders to buy and sell New York futures, rose for a fourth week, climbing 25 percent to 135,669 contracts in the week ended Jan. 12, according to the Washington-based CFTC.
“Commodities are the bright spot in the financial sector,” said David Kirsch, an Overland Park, Kansas-based analyst with PFC Energy, an energy strategist to companies and governments. “The returns have been better than elsewhere.”
Futures dropped 5.7 percent last week, the first weekly decline in five, after U.S. fuel supplies rose. Oil surged to $83.95 a barrel on Jan. 11 as cold weather in the eastern U.S. bolstered consumption of heating fuels and the dollar declined against the euro.
“The very cold weather gave the market support earlier this month,” Kirsch said. “There’s no fundamental support for a rise in prices. It’s hard to square the bad short-term outlook with the longer-range view of a recovery in demand.”
U.S. Inventories
An Energy Department report on Jan. 21 will probably show that crude oil stockpiles climbed 2.5 million barrels last week, according to the median of 11 analyst responses in a Bloomberg News survey. Gasoline supplies probably increased 2 million barrels, the survey showed.
The price of oil on the Nymex for delivery in February is 30 cents lower than for March, the smallest divergence between front-month contracts since Oct. 20. This structure, in which the future month’s price is higher than for the one before it, is known as contango and allows buyers to profit from storing oil. A narrowing spread reduces that incentive.
Oil dropped earlier today as the dollar climbed against the euro, reducing the appeal of commodities to investors looking for alternative investments. The dollar traded at $1.4290 per euro, up 0.7 percent from $1.4384 yesterday. The greenback touched $1.4252, the highest since Dec. 23.
Plenty of Oil
“What oil does in large part depends on which way the dollar is trading,” said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at MFC Global Investment Management in Boston. “There’s nothing fundamental supporting higher prices. We have plenty of oil and plenty of products.”
The Organization of Petroleum Exporting Countries raised its forecast for global oil demand this year by 20,000 barrels to 85.15 million barrels a day. Consumption will expand 820,000 barrels a day, or 1 percent, from 2009, according to the monthly report from OPEC’s Vienna-based secretariat.
The International Energy Agency left its 2010 demand forecast unchanged last week and the U.S. Energy Department reduced its outlook. Both agencies forecast that consumption will increase by more than 1 million barrels in 2010.
Brent Oil
Brent crude oil for March settlement rose 53 cents, or 0.7 percent, to end the session at $77.63 a barrel on the London- based ICE Futures Europe exchange. The contract dropped to $75.37, the lowest intraday price since Dec. 24.
Oil volume in electronic trading on the Nymex was 669,547 contracts as of 3:03 p.m. in New York. Volume totaled 534,322 contracts on Jan. 15, 5.4 percent below the average of the past three months. Open interest was 1.33 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
