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Oil Trades Near One-Week High on Speculation U.S. Economy May Boost Demand

27 Jan 2012

Oil traded near the highest price in a week in New York and is poised for the first weekly gain in three amid signs of economic recovery in the U.S., the world’s biggest crude consumer.

Futures were little changed after climbing for a second day yesterday. U.S. durable goods orders rose more than forecast in December, according to Commerce Department data, while a report this week showed gasoline demand increased the most in more than two months. Australia’s crude production may have been cut by a quarter as Tropical Cyclone Iggy shut platforms. Brent oil’s premium to New York-traded West Texas Intermediate widened.

“The data we’ve seen out of the U.S. over the last few months is indicating a recovery in the economy,” Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty in Sydney, said by telephone today. “The spread between Brent and West Texas has blown out again. That suggests the potential for some supply disruption out of the Middle East is in the back of traders’ minds.”

Crude for March delivery was at $99.63 a barrel in electronic trading on the New York Mercantile Exchange, down 7 cents, at 3:29 p.m. Singapore time. Yesterday, the contract gained 30 cents to $99.70, the highest settlement since Jan. 19. Prices have climbed 1.2 percent so far this week and 16 percent in the past year.

Brent oil for March settlement on the London-based ICE Futures Europe exchange was at $110.68 a barrel, down 11 cents. The European benchmark contract was at a premium of $11.10 to West Texas futures. The spread shrank to $9.90 on Jan. 18 and reached a record $27.88 on Oct. 14.

Technical Support

Crude in New York has technical support along its 50-day moving average, around $99.28 a barrel today, according to data compiled by Bloomberg. Futures slid to an intraday low yesterday of $99.23. Buy orders tend to be clustered near chart-support levels.

“West Texas is in a key area between $99 and $102 so if we do see it trade up through $102.50 in the next few sessions we could well get a bit of a gallop on,” McCarthy said.

U.S. bookings for durable goods, or products meant to last at least three years, advanced 3 percent after rising 4.3 percent the prior month, the biggest back-to-back gains in almost a year, based on a Commerce Department report yesterday in Washington. A median 2 percent increase was predicted by 78 economists surveyed by Bloomberg News.

Fuel consumption rose 7.5 percent to 19.2 million barrels a day in the week ended Jan. 20, the largest gain since Nov. 4, the Energy Department said on Jan. 25.

Iran Sanctions

Oil has also risen this week amid concern European Union sanctions on Iran will curb supplies. EU foreign ministers agreed on Jan. 23 to ban petroleum imports from the Persian Gulf nation from July 1 to pressure the country over its nuclear program. Iranian President Mahmoud Ahmadinejad said his country is willing to revive talks on its nuclear plans and accused Western countries of dodging discussions, the state-run Fars news agency reported yesterday.

Iran has threatened to close the Strait of Hormuz in retaliation against the embargo. The waterway is a transit route for about a fifth of the world’s crude, according to the U.S. Department of Energy.

More than 70 percent of investors in a quarterly Bloomberg Global Poll said an attack on Iran’s nuclear facilities would create only a short-term disruption in crude markets. About a third of 1,209 global investors, traders and analysts surveyed from Jan. 23 to Jan. 24 said an attack could trigger an oil shock leading to a global recession.

Tropical Cyclone Iggy

Crude may rise next week on the EU embargo plan and after the Federal Reserve committed to keep interest rates near a record low through 2014, according to a Bloomberg News survey. Fifteen of 32 analysts and traders, or 47 percent, forecast oil will advance through Feb. 3. Ten respondents, or 31 percent, predicted prices will drop and seven estimated there will be little change.

Tropical Cyclone Iggy reduced Australian oil output this week by as much as 100,000 barrels a day, or about a quarter of the country’s average production last fiscal year. The storm will strengthen to Category 3 tomorrow, the third-strongest on a five-step scale, the Bureau of Meteorology said on its website.