Crude Oil Gains After U.S. Equities Are Buoyed by Earnings
Crude oil rose, ending two days of losses, after U.S. stocks gained on better-than-expected company earnings that overshadowed declines in consumer confidence and home prices.
The Standard & Poor’s 500 Index climbed 1.1 percent to 845.71, posting the first three-day rally since Jan. 2. The boost to oil from equities came after crude prices slumped 9.1 percent yesterday on reports showing that consumer confidence sank to the lowest level on record in January as home values dropped and jobs disappeared.
“Prices continue to be susceptible to economic headlines,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “Some people are nervous” about a supply report today from the U.S. Department of Energy, he said.
Crude oil for March delivery rose as much as 67 cents, or 1.6 percent, to $42.25 a barrel on the New York Mercantile Exchange. The contract was trading at $42.14 a barrel at 8:02 a.m. in Singapore.
Yesterday, crude oil for March delivery fell $4.15 to settle at $41.58 a barrel, the biggest decline since Jan. 7. Prices are down 6.8 percent in 2009 and are 54 percent lower than a year ago.
The Conference Board’s index of U.S. confidence, records for which go back to 1967, fell to 37.7, lower than forecast. A separate report showed the drop in house prices in major metropolitan areas deepened in November. The S&P/Case-Shiller 20- city index fell 18.2 percent from a year earlier, the most since it began in 2001.
Inventories to Gain
Crude oil inventories rose for a 16th time in 18 weeks, increasing 2.8 million barrels in the week ended Jan. 23, according to the median of 13 analyst estimates in a Bloomberg News survey. The U.S. Energy Department will release the data at 10:30 a.m. in Washington today.
The price of oil for delivery next December is 29 percent more than for the current month, increasing the opportunity for traders to profit from storing crude for later use. This structure, in which a future month’s price is higher than the one before it, is known as contango.
“Inventories will continue to rise as long as the contango is in place,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “It pays to purchase oil now and put it away.”
The industry-funded American Petroleum Institute released its weekly report on oil inventories at about 4:30 p.m. in Washington yesterday.
Crude-oil supplies rose 800,000 barrels to 338.1 million last week, the API report showed. Gasoline stockpiles increased 942,000 barrels and inventories of distillate fuel, a category that includes heating oil and diesel, declined 345,000 barrels.
Volume in electronic trading on the exchange was 532,375 contracts as of 3:08 p.m. in New York yesterday. Volume totaled 513,722 contracts Jan. 26, up 5.9 percent from the average over the past three months. Open interest yesterday was 1.23 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.
The Organization of Petroleum Exporting Countries will lower crude output further, if required, when the producer group meets in March, Kuwait’s acting oil minister said. OPEC announced a record 9 percent cut in supply targets at a Dec. 17 meeting to bolster prices. The reduction took effect on Jan. 1.
“The primary concern is stability of the market. If that requires a production cut, then so be it,” Sheikh Mohammed Sabah Al-Salem Al-Sabah told reporters in Kuwait City today.
Royal Dutch Shell Plc sold more than 1 million barrels of crude stored off the U.K. and a vessel hired by Citigroup Inc.’s Phibro LLC left its anchorage in Scotland for the U.S. Companies and traders have put as much as 80 million barrels of crude in tankers as the contango allowed them to profit from storing oil.
“We are seeing some oil being removed from floating storage, which is a sign of tightness in the market,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York. “The OPEC cuts have brought supply and demand close to balance.”
OPEC will curb supplies by about 5 percent this month to 26.15 million barrels a day, based on tanker movements, consultant PetroLogistics Ltd. said Jan. 23.
“The market has shown surprising strength in the face of continuing weak economic news,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Some of this is due to the early OPEC production estimates, which show that they are making significant cuts.”
Crude prices may rise above $100 a barrel by the end of the year if OPEC implements its planned production reductions in full, the Centre for Global Energy Studies said in a monthly report yesterday.
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