Oil Rises for a Second Day as Governments Move to Support Banks

By Christian Schmollinger

Oct. 14 (Bloomberg) -- Crude oil rose in New York, heading for its biggest two-day gain in three weeks, as governments in the U.S. and Europe acted to stem the worst financial crisis since the 1930s.

Oil followed stock markets higher as the Bush administration plans to in inject about $125 billion into nine major U.S. banks in a push to restore confidence. The International Energy Agency last week said global oil demand this year will grow at the slowest pace since 1993 as economies slide into a recession.

``We had a big bounce in the equity market so there is some hope that we've reached a bottom,'' said Toby Hassall, a research analyst with Commodity Warrants Australia Ltd. in Sydney. ``At the moment the market is just reacting to sentiment day to day. The underlying economic situation is not going to be supportive for prices.''

Crude oil for November delivery rose as much as $2.49, or 3.1 percent, to $83.68 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $83.36 a barrel at 3:15 p.m. Singapore time. Oil has climbed 7.3 percent in the past two days, the most since Sept. 22.

Prices, which are down 3.2 percent from a year ago, have dropped 43 percent from the record $147.27 a barrel reached on July 11.


``This gain is psychological as there is an expectation the financial turmoil will be over and there is a recovery of the economy,'' said Tetsu Emori, a fund manager at Astmax Ltd. in Tokyo. ``It's too early to say that demand for commodities will be coming back. These things take time.''

Rescue Plan

The U.S. government will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for preferred shares of nine major banks, people briefed on the matter said.

The companies are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., the people said. One of the people also said Merrill Lynch & Co. will receive an investment.

Asian stocks climbed for a second day, following the biggest surge in U.S. equities since the 1930s yesterday.

New York oil futures dropped 17 percent last week, the biggest one-week decline since the U.S.-led invasion of Iraq in March 2003. Copper, nickel and aluminum also decreased as equity markets plunged and the International Monetary Fund warned the world was on the cusp of a recession.

Inventories Gain

Brent crude oil for November settlement climbed as much as $2.08, or 2.7 percent, to $79.54 a barrel on London's ICE Futures Europe exchange. It was at $79.38 a barrel at 3:17 p.m. Singapore time.

U.S. oil and gasoline inventories probably rose last week as production increased and refineries opened units that were shut last month because of Hurricanes Gustav and Ike, a Bloomberg News survey of analysts showed.

Crude oil stockpiles probably increased 2.6 million barrels in the week ended Oct. 10 from 302.6 million the week before, according to the median of 10 analyst estimates before an Energy Department report this week.

Refineries probably operated at 83.8 percent of capacity, up 2.9 percentage points from the week before, the survey showed.

Gasoline stockpiles probably rose 3 million barrels last week, from 186.8 million barrels the week before, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably gained 500,000 barrels from 122.6 million barrels.

The Energy Department is scheduled to release its weekly report on Oct. 16 at 11 a.m. in Washington.

China Imports

China, the world's second-largest energy user, increased crude oil imports by 10 percent in September to meet rising demand from refineries.

Imports climbed to 15.03 million metric tons, or 3.66 million barrels a day, last month, the Beijing-based Customs General Administration of China said on its Web site today. The rate of increase compares with an 11.5 percent gain in August and a 7 percent decline in July.

Chinese oil companies are expanding refineries to meet fuel demand from the world's fastest-growing major economy. China's processing capacity increased at least 5 percent in the third quarter as the nation's two biggest oil companies, PetroChina Co. and China Petroleum & Chemical Corp., boosted capacity in Qingdao and Dalian.

Imports in the first nine months rose 8.8 percent to 135 million tons, Customs said today. The country increased crude- oil imports to 140 million tons, Customs said in a separate statement yesterday, suggesting purchases reached a record 20 million tons in September. Exports were 580,000 tons, it said today.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.