Oil Rises for Fourth Day as U.S. Bailout Plan May Spur Demand

By Christian Schmollinger

Sept. 22 (Bloomberg) -- Crude oil rose for a fourth day in New York on speculation the U.S. government's proposed $700 billion rescue plan for the finance industry will spur demand.

Oil has climbed 16 percent since Sept. 16, the biggest four-day gain since October 2000, as lawmakers pledged fast consideration of the Treasury's plan to buy devalued mortgage- related securities from investment firms to keep the financial system from stalling. Asian stock markets advanced for a second day as concern eased that more companies will fail.

``The whole key to the market is the economy,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``Hopefully the bailout plan will keep the economy from seizing. A truly healthy market is when you have demand growing also, not just supply being stunted.''

Crude oil for October delivery rose as much as $1.22 a barrel, or 1.2 percent, to $105.77 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $105.58 a barrel at 2:56 p.m. in Singapore. Futures closed at $104.55 on Sept. 19, the highest settlement price since Sept. 8.

The contract, which expires at the close of trading today, jumped as much as 7.4 percent on Sept. 19, capping the biggest three-day rally in almost a decade, as investors bought oil to cancel out earlier bets on falling prices.

``Anything that is able to provide some stability for the financial system and shore up the economic outlook is a supporting factor,'' said David Moore, the commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney.

November Oil

Oil fell more than $10 a barrel early last week as the bankruptcy of Lehman Brothers Holdings Inc. shocked world equity markets.

The more widely held November contract traded at $104.53 a barrel, up $1.78. It gained 5.3 percent on Sept. 19, leaving it at a $1.80 a-barrel discount to October oil, the biggest margin between the two leading contracts for six months.

The gap between the two contracts is a result of a sharp plunge in gasoline and crude oil inventories following Hurricane Ike, said Mitsubishi's Nunan.

The Energy Department's Sept. 24 inventory report may show that U.S. gasoline supplies fell 8.5 million barrels from a four-decade low as Texas refineries assess damage from Hurricane Ike, a department official said on Sept. 19.

Gasoline stockpiles dropped 3.31 million barrels to 184.6 million in the week ended Sept. 12 as the storm forced refineries with about 20 percent of the nation's fuel-processing capacity to shut, the department's weekly inventory report on Sept. 17 showed. Supplies were the lowest since November 1967, according to Jonathan Cogan, a department spokesman.

`Tight' Situation

``You've seen the first and second month spread blow out,'' said Mitsubishi's Nunan. ``That's a sign that the prompt situation looks tight.''

Brent crude oil for November settlement rose as much as $1.89, or 1.9 percent, to $101.50 a barrel on London's ICE Futures Europe exchange. It was at $101.32 a barrel, up $1.71, at 2:59 p.m. Singapore time. The contract rose $4.42, or 4.6 percent, to $99.61 a barrel on Sept. 19.

Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures in the week ended Sep. 16, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 19,379 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 13,043 contracts, or 206 percent, from a week earlier.

Crude oil prices are ``too high'' because the global economic slowdown may spread and cut consumption, the International Energy Agency's deputy executive director said.

``The economic slowdown in the U.S., Europe hasn't gotten into China, India much, but at some point you have to presume it will,'' William Ramsay said in an interview in Bangkok today.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Gavin Evans in Wellington at gavinevans@bloomberg.net