Oil Rises on Speculation Auto Plan to Help Boost Energy Demand

Dec. 11 (Bloomberg) -- Crude oil climbed above $44 a barrel, extending a rally into a second day, on speculation that the economy and energy demand will recover as U.S. lawmakers hammer out a $15 billion rescue of automakers.

Oil rose as congressional Democrats and President George W. Bush’s administration reached an agreement on the plan. Prices advanced earlier this week because of President-elect Barack Obama’s pledge to enact the biggest U.S. public works program in half a century.

“The economy is all that matters right now,” said Brad Samples, a commodity analyst for Summit Energy Inc., an energy- management company in Louisville, Kentucky. “We are expecting a major stimulus and it looks like they’ve come to some kind of agreement to help the automakers.”

Crude oil for January delivery rose as much as 72 cents, or 1.7 percent, to $44.24 a barrel and traded at $43.85 at 10:48 a.m. Sydney time on the New York Mercantile Exchange. It gained $1.45, or 3.4 percent, to $43.52 a barrel yesterday.

Futures, which have dropped 54 percent this year, are heading for the biggest annual decline since trading began in 1983, as global economies falter.

U.S. House of Representatives Speaker Nancy Pelosi said she plans to have a vote on the auto bill in the House, where Democrats have a large enough majority to make passage likely.

“There’s greater confidence that policy makers are going to do whatever is needed to boost growth,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “There are great hopes that Obama will be able to get things done.”

Increased Volatility

Implied volatility for January crude oil, the major factor in determining options prices, rose to the highest in more than 22 years Dec. 9 in a sign that traders anticipate more big moves in oil futures.

Implied volatility rose to 114.41, the highest since at least 1986, according to data released yesterday by the New York Mercantile Exchange. Implied volatility for less-heavily traded February oil was 96.62, also a 22-year high for the second-most active trading month. January oil options expire Dec. 16.

Oil also rose yesterday after Russia signaled it may coordinate an output cut with OPEC next week to end the five- month, $100 slump in prices.

Energy Minister Sergei Shmatko said Russia will announce proposals for reducing production by Dec. 17, when OPEC meets, Interfax reported. The group, source of more than 40 percent of the world’s oil, may trim output by as much as 2.5 million barrels a day, next week, billionaire hedge-fund manager Boone Pickens said Dec. 9.

OPEC ‘Optimism’

“There’s greater optimism that OPEC will take strong action at its next meeting,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “They will probably cut by at least 2 to 2.5 million barrels a day at this meeting.”

Shmatko said he had spoken on the phone to the president of the Organization of Petroleum Exporting Countries and that the group is preparing “significant” supply reductions, Interfax said. Russia is the world’s second-largest exporter after Saudi Arabia. Norway, the next biggest non-OPEC exporter, has no plans to lower production, the petroleum ministry said.

OPEC should make a “substantial” output cut when it meets on Dec. 17 in Algeria, Shokri Ghanem, Libya’s top oil official, said on Dec. 8. Oil has tumbled 29 percent since the group announced a 1.5 million-barrel-a-day supply reduction on Oct. 24.

OPEC will “work it back up to $100,” Pickens said Dec. 9 in an interview in New York. “It will all be determined by the global economy. If you get a recovery in the global economy, you will get it back up.”

Fuel Inventories

Prices dropped earlier yesterday after the U.S. government released a report that showed inventories of gasoline and distillate fuel, a category that includes heating oil and diesel, climbed last week as refineries increased operating rates and demand dropped.

Gasoline stockpiles rose 3.7 million barrels to 202.7 million barrels in the week ended Dec. 5, the Energy Department said yesterday in the weekly report. Distillate inventories climbed 5.6 million barrels to 130.6 million. Gasoline supplies were forecast to fall 400,000 barrels and distillate supplies by 1.5 million barrels, according to a Bloomberg News survey.

Inventories of crude oil rose 392,000 barrels to 320.8 million, the department said. Supplies were forecast to increase by 1.3 million barrels, according to the median of 14 responses in the Bloomberg News survey.

Refineries operated at 87.4 percent of capacity, up 3.1 percentage points from the week before.

Brent crude oil for January settlement increased 87 cents, or 2.1 percent, to settle at $42.40 a barrel on London’s ICE Futures Europe exchange yesterday.