Oil Rises for First Time in Three Days as U.S. Equities Rebound

Feb. 24 (Bloomberg) -- Crude oil rose for the first time in three days as the U.S. stock market advanced, signaling that fuel use in the world’s biggest energy-consuming country may rebound.

Oil climbed 4 percent as equities rebounded after the Standard & Poor’s 500 Index sank 3.5 percent yesterday. Prices have dropped 73 percent from a record $147.27 on July 11 as the U.S., Europe and Japan face a simultaneous recession that’s cut fuel demand. A government report tomorrow may show that supplies gained last week, a Bloomberg News survey showed.

“The equity markets are a reflection of what people feel about the economy, and that impacts demand,” said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York. “The oil market is finely poised right now, and the key determinant of its direction is the demand outlook.”

Crude oil for April delivery rose $1.52 to settle at $39.96 a barrel at 2:59 p.m. on the New York Mercantile Exchange. Prices, which are down 10 percent this year, have dropped 60 percent from a year ago.

The Dow Jones Industrial Average increased 236.16 points, or 3.3 percent, to 7,350.94. The Standard & Poor’s 500 Index rose 29.81 points, or 4 percent, to 773.14.

“The oil and equity markets are following similar paths at the moment, which is unusual, but it makes a lot of sense at this time,” Eagles said.

The Organization of Petroleum Exporting Countries, the U.S. Energy Department and International Energy Agency cut their demand forecasts this month because of the economic contraction.

Inventories

Inventories probably gained 1.25 million barrels last week, according to the median of 14 analyst responses in a Bloomberg News survey. Supplies fell 138,000 barrels in the week ended Feb. 13, the first decline so far this year. The Energy Department will release its weekly report tomorrow at 10:30 a.m. in Washington.

The industry-funded American Petroleum Institute said supplies rose 341,000 barrels to 346.2 million barrels a day last week, in a report that was released at 4:30 p.m. in Washington.

The price of oil for delivery in May is $2.80 a barrel higher than for April. December futures are $9.86 higher than the front-month contract. This structure, in which the future month’s price is higher than the one before it, is known as contango and allows buyers to profit from hoarding oil.

Volume in electronic trading on the exchange was 412,500 contracts as of 3:09 p.m. in New York. Volume totaled 505,445 contracts yesterday, 3 percent lower than the average over the past three months. Open interest was 1.17 million contracts yesterday. The exchange has a one-business-day delay in reporting open interest and full volume data.

Cushing Supplies

Crude oil supplies at Cushing, Oklahoma, where New York- traded West Texas Intermediate crude is delivered, declined 52,000 barrels to 34.9 million barrels in the week ended Feb. 13, according to the Energy Department. Inventories in the week ended Feb. 6 were the highest since at least April 2004, when the department began keeping records for the location.

The high inventories at Cushing have depressed the West Texas price so that Brent crude oil traded in London is at a premium to the U.S. grade.

Brent crude oil for April settlement increased $1.51, or 3.7 percent, to end the day at $42.50 a barrel on London’s ICE Futures Europe exchange.

The 11 OPEC members with quotas, all except Iraq, reduced output 3.8 percent to 25.3 million barrels a day in February, consultant PetroLogistics Ltd. of Geneva said yesterday. That’s down from 26.3 million barrels in January, according to Conrad Gerber, founder of PetroLogistics. Members have a quota of 24.845 million barrels a day.

Supply Availability

“OPEC does not want prices to stay here and is willing to do something about it,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “They have reduced the availability of supply in the marketplace.”

Iran, Venezuela and Iraq said last week that OPEC is prepared to cut production again when it meets on March 15.

Analysts were split over whether gasoline supplies rose or fell, according to the Bloomberg News survey. Stockpiles of distillate fuel, a category that includes heating oil and diesel, dropped 1.2 million barrels.

Gasoline futures for March delivery increased 4.04 cents, or 3.9 percent, to settle at $1.0837 a gallon in New York. Heating oil for March delivery rose 3.28 cents, or 2.8 percent, to end the session at $1.2082 a gallon.

The average U.S. pump price for regular gasoline dropped 1 cent to $1.90 a gallon yesterday, AAA, the nation’s largest motorist organization, said on its Web site yesterday. Prices have declined 54 percent from the record $4.114 a gallon reached in July.