Oil Trades Little Changed After Rising Above $79 on Demand Gain

Oct. 19 (Bloomberg) -- Crude oil traded little changed in New York after rising above $79 a barrel for the first time in a year on speculation demand will increase as the global economy recovers from recession.

Oil climbed as high as $79.05 before a report that may show confidence among home builders in the U.S., the world’s largest energy user, is at its highest in 17 months, according to economists surveyed by Bloomberg News.

“Overall oil’s looking very positive, reacting to a pretty good stream of new economic data coming out of the U.S., which is starting to show signs of picking up,” said Geoff Clear, head of Asian commodities at Australian & New Zealand Banking Group Ltd. in Singapore. Crude will be trading “at more normalized prices around the $80 mark,” he said.

Crude oil for November delivery was at $78.76 a barrel, up 23 cents, in after-hours electronic trading on the New York Mercantile Exchange at 3:07 p.m. Singapore time. Prices earlier rose as much as 52 cents, or 0.7 percent, to $79.05, the highest since Oct. 15, 2008.

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 was at $79.16 a barrel, up 14 cents, at 3:08 p.m.

Last week, oil futures posted their biggest weekly gain in almost two months as U.S. refiners cut operating rates to a six- month low to clear gasoline and distillate stockpiles.

U.S. Inventories

Oil prices have increased 23 percent in 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 commodities.

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 170.7 million barrels, they were 30 percent above the five-year average for the period.

“Inventory levels are still relatively high,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “Ultimately we’ll see oil prices drifting lower again, maybe under $70 a barrel even, because the market is relatively well supplied.”

Brent crude oil for December settlement rose as much as 33 cents, or 0.4 percent, to $77.32 a barrel on the London-based ICE Futures Europe exchange, and was at $77.20 at 3:08 p.m. Singapore time.

“This week’s DOE report has had mixed results for refined products,” Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut, said in a note to clients. “If this week follows historical trends, we should see a bounce back up in both crude oil imports and in refinery utilization.”

OPEC Production

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 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 long positions, or bets prices will rise, outnumbered short positions by 68,836 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 18,830 contracts, or 38 percent, from a week earlier.

“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,” said Ben Westmore, an energy and minerals economist at National Australia Bank Ltd. in Melbourne.