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Oil Trades Near Three-Week High on Outlook for Economic Stimulus

11 Sep 2012

Oil traded near the highest close in almost three weeks in New York amid speculation the U.S. will add to measures to revive its economy, countering concern thatEurope’s bailout plan will falter.

U.S. crude inventories probably dropped to the lowest level since March as more than a third of Gulf of Mexico output remained shut 10 days because of Hurricane Isaac, a Bloomberg survey showed. The Federal Reserve starts a two-day meeting tomorrow where it may announce stimulus measures. Goldman Sachs Group Inc. said West Texas Intermediate oil may rise to narrow the gap between the benchmark grade and other regional crudes.

“Prices are likely to break to the upside,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart,Denmark, who predicts Brent crude will surpass $116 a barrel in the next week. “Oil fundamentals are balanced. A rise in prices would mostly be fueled by more money flooding in from the Fed.”

Crude for October delivery was at $96.65 a barrel, up 11 cents, in electronic trading on the New York Mercantile Exchangeat 1:19 p.m. London time. The contract rose 12 cents to $96.54 yesterday, the highest close since Aug. 22. Prices are 2.2 percent lower this year.

Brent oil for October settlement slipped 7 cents to $114.74 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate was at $18.08, compared with $18.27 yesterday.

Technical Support

Brent, a benchmark grade for more than half of the world’s oil, has risen 30 percent since this year’s lowest close on June 22, as a European Union embargo on crude purchases from Irantook full effect on July 1.

Oil in New York has technical support along the middle Bollinger Band on the daily chart, at around $94.30 a barrel today, according to data compiled by Bloomberg. Futures halted declines near this indicator in July and August. Buy orders tend to be clustered near chart-support levels.

WTI may add $10 a barrel from current levels to attract crude flows from Canada and the Bakken shale formation to Cushing, Oklahoma, the delivery point for New York-traded contracts, according to Goldman Sachs. The benchmark grade may narrow its discount to other crudes as increased railway capacity reduces an oil glut in the U.S. Midwest, Goldman said in a report e-mailed today.

Goldman Forecast

“We expect that Bakken and Canadian crude oil will need to continue to flow to Cushing in the fourth quarter 2012, and WTI prices will need to rise back above Canadian and Bakken prices in order to motivate these flows,” David Greely, a New York-based analyst at Goldman Sachs, said in the report.

The Organization of Petroleum Exporting Countries said it considers crude supplies to be “abundant” and that an expected slowdown in oil demand growth next year may be more severe than forecast if the global economy deteriorates.

OPEC predicts that the increase in world oil consumption will decline to 800,000 barrels a day in 2013, from 900,000 a day this year, according to its monthly market report released today. The group estimates its 12 members will need to pump an average of 29.5 million barrels a day next year, or 1.9 million less than current output levels.

Germany’s Federal Constitutional Court will rule tomorrow on the country’s participation in the European Stability Mechanism, a permanent 500 billion-euro ($638 billion) fund that offers loans to member states and may buy their bonds to cut borrowing costs. Germany will be the biggest contributor to the fund with a 27 percent share, according to a statement from the European Commission.

Asset Purchases

The Fed may announce a third round of asset purchases, or quantitative easing, after its meeting. The nation, the world’s biggest oil consumer, added 96,000 workers in August compared with 141,000 in July, Labor Department figures showed Sept. 7.

U.S. crude inventories probably dropped 2.63 million barrels last week, according to the median of eight analyst estimates in a Bloomberg News survey before an Energy Departmentreport tomorrow. Gasoline supplies may have slipped 1.65 million barrels, the survey shows.

The industry-funded American Petroleum Institute will release separate stockpile data today. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.