Crude Oil Rises to 10-Month High as Equity Gain Spurs Optimism

Aug. 21 (Bloomberg) --Crude oil rose to a 10-month high in New York, following equities higher on speculation that the global recession is easing.

Oil climbed 1.3 percent as the Standard & Poor’s 500 Index advanced to the highest level since October, after U.S. existing home sales increased more than forecast. Prices were also bolstered as the euro strengthened against the dollar, enhancing the appeal of commodities to investors.

“The economic recovery is going to spur further upward movement in prices,” said John Kilduff, senior vice president of energy at MF Global in New York. “There’s a lot of inherent strength in this market. It’s becoming clear that the recovery is for real and energy demand is going to pick up.”

Crude oil for October delivery increased 98 cents to $73.89 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the highest settlement since Oct. 20. October futures advanced 6.2 percent this week. Prices are up 66 percent this year.

Brent crude oil for October settlement rose 86 cents, or 1.2 percent, to end the session at $74.19 a barrel on the London-based ICE Futures Europe exchange.

Purchases of existing homes climbed 7.2 percent to a 5.24 million annual rate, the most since August 2007, the National Association of Realtors said today in Washington. The gain was the biggest since records began in 1999.

Equities Climb

The S&P 500 added 1.7 percent to 1,024.82 at 3:11 p.m. in New York and the Dow Jones Industrial Average gained 1.5 percent to 9,493.19. European stocks advanced after services in Germany and manufacturing in France unexpectedly rose.

An index of the German services industry rose to 54.1 this month from 48.1 in July, Markit Economics said today, citing its purchasing managers’ survey. The French manufacturing index increased to 50.2 in August from 48.1 in the prior month. A reading above 50 indicates growth. Economists forecast both indexes would remain below 50, a Bloomberg News survey showed.

The U.S. currency declined 0.6 percent versus the euro to $1.4343 from $1.4254 yesterday. The Dollar Index, which tracks the dollar against currencies including the yen, pound and Swedish krona, fell 0.5 percent to 78.027.

“All signs are pointing higher,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford Connecticut. “The market continues to get support from equities and was able to break through $74, which should stimulate technical buying.”

U.S. Stockpiles

The U.S. Energy Department reported on Aug. 19 that crude- oil inventories fell 8.4 million barrels to 343.6 million last week. The decline left stockpiles 15 percent higher than the department’s revised figures for the year-ago period.

“We’re still seeing some residual strength from Wednesday’s report,” said Rick Mueller, a director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “An 8 million-barrel drop is going to get a lot of attention no matter what the absolute level of supply.”

U.S. fuel demand climbed 3.1 percent to 19.3 million barrels a day last week, the department’s report showed. Consumption has increased in six of the past eight weeks.

“We are staring to see pretty good product demand, which is supporting prices,” Mueller said.

South Korea, the world’s ninth-biggest consumer of crude oil, said fuel demand rose for a fourth month in July as the economy showed signs of recovery. The country used 63.66 million barrels of oil products last month, up 5.2 percent from 60.51 million barrels a year earlier, data e-mailed today by state-run Korea National Oil Corp. shows.

U.S. supplies of distillate fuel, a category that includes heating oil and diesel, declined 650,000 barrels to 161.6 million last week. The drop left stockpiles 23 percent above the revised figures for the same period last year.

Following Equities

“Crude and heating oil are extremely well supplied, but we’re going to follow the stock market,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “For the foreseeable future trading oil is like trading the stocks.”

Futures may fall next week, according to a weekly Bloomberg News survey. Twenty-one of 38 analysts surveyed, or 55 percent, said futures will decline through Aug. 28. Eight respondents, or 21 percent, forecast that the market will rise and nine said prices will be little changed.

Oil volume in electronic trading on the Nymex was 387,705 contracts as of 3:14 p.m. in New York. Volume totaled 468,752 contracts yesterday, 13 percent lower than the average over the past three months. Open interest was 1.14 million contracts. The exchange has a one-business-day delay in reporting open interest and full volume data.