Crude Oil Rises for Eighth Day on Speculation Demand Recovering

Oct. 19 (Bloomberg) -- Crude oil climbed above $79 a barrel in New York for the first time in a year, rising for an eighth day on speculation demand will increase as the global economy recovers from recession.

A report today may show confidence among home builders in the U.S., the world’s largest oil consumer, is at its highest in 17 months, according to economists surveyed by Bloomberg News. There is no shortage of oil and OPEC won’t increase output to quell price gains driven by speculators, Secretary-General Abdalla El-Badri told the Wall Street Journal on Oct. 16.

“The economic numbers are looking better and a lot of that seems to have already been priced in,” said Ben Westmore, energy and minerals economist at National Australia Bank Ltd. in Melbourne. “There is still a big question mark over how much of that, especially in the U.S. and China, is being driven by the stimulus packages.”

Crude oil for November delivery rose as much as 52 cents, or 0.7 percent, to $79.05 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the highest since Oct. 15 2008. It traded at $78.98 at 7:10 a.m. in Singapore.

The contract, which expires tomorrow, jumped 1.2 percent to $78.53 a barrel on Oct. 16 after a report showed U.S. industrial production climbed more than economists expected last month. The more widely held December contract jumped 38 cents to $79.40 today.

Oil futures posted their biggest weekly increase in almost two months last week as U.S. refiners slashed operating rates to a six-month low to clear above-average gasoline and distillate stockpiles. Gains accelerated after prices closed above the August high of $75, encouraging fresh buying by funds.

U.S. Inventories

Oil prices have gained 23 percent the past three months, even as U.S. fuel stockpiles climbed. Prices rose as a recovery in equity markets emboldened investors and the sliding U.S. dollar prompted investors to buy physical assets.

U.S. distillates supplies, including diesel and heating oil, fell from a 26-year high in the week ended Oct. 9, the Energy Department reported last week. At 170.1 million barrels they were 30 percent above the five-year average for the period.

“The market is pricing in a very big upturn in demand in order to draw down all that product, and I just think it’s a little optimistic at this point,” National Australia’s Westmore said. “A lot of the run-up has just been a result of both following the equity markets and the weak dollar.”

Brent crude oil for December settlement rose 33 cents, or 0.4 percent, to $77.32 a barrel on the London-based ICE Futures Europe exchange. It gained 1 percent to $76.99 on Oct. 16.

OPEC Production

The Organization of Petroleum Exporting Countries pumps about 40 percent of the world’s oil and last year slashed output quota by 4.2 million barrels a day to prevent a global glut.

Last week, OPEC’s El-Badri said prices between $65 and $75 were sufficient to maintain investment and development within the industry.

The latest jump in prices “has nothing to do with the shortage in the oil market,” he told the Wall Street Journal. Regulators must take action to avert the speculation that pushed prices to records last year, he said.

“Speculation must be prevented from going wild as it happened in 2008,” he told the newspaper. Oil reached a record $147.27 a barrel in New York in July 2008.

Hedge-fund managers and other large speculators increased their bets on rising oil futures to a nine-month high last week, according to U.S. Commodity Futures Trading Commission data.

Speculative net-long positions, the difference between orders to buy and sell the commodity, jumped 38 percent to 68,836 contracts in the week ended Oct. 13, the highest since Jan. 9, the commission reported last week. Open interest in Nymex oil futures is at a 15-month high.