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

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 that Europe’s bailout plan will falter. Futures were little changed, paring an earlier decline. 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 $96.55 a barrel, up 1 cent, in electronic trading on the New York Mercantile Exchange at 10:45 a.m. London time. The contract rose 12 cents to $96.54 yesterday, the highest close since Aug. 22. Prices are 2.3 percent lower this year. Brent oil for October settlement gained 23 cents to $115.04 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to West Texas Intermediate was at $18.47, 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 Iran took full effect on July 1. Global supply, demand and inventories of crude don’t justify the increase in prices, Saudi Arabian Oil Minister Ali al-Naimi said yesterday, according to the official Saudi Press Agency. The kingdom is the world’s largest crude exporter. 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. 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. 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 Department report 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.

Courtesy: Bloomberg