Crude Oil Rises From Seven-Week Low After U.S. Equities Recover

By Christian Schmollinger and Samantha Zee

Feb. 13 (Bloomberg) -- Crude oil rose in New York, paring the worst weekly decline since December, after equities gained on speculation governments will widen efforts to help consumers weather a deepening global recession.

Oil gained as much as 1.9 percent as Asian stock markets rallied following gains on U.S. bourses. President Barack Obama plans to use government money to help cut mortgage interest rates, according to a person briefed on the proposal. Australia’s Senate today passed a A$42 billion ($28 billion) stimulus plan.

“To an extent, the equities market is seen as a reflection of confidence in the economic outlook and that affects crude prices,” said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. in Sydney.

Crude oil for March delivery rose as much as 65 cents to $34.63 a barrel on the New York Mercantile Exchange. It was at $34.55 a barrel at 9:55 a.m. Singapore time.

Yesterday, futures fell $1.96, or 5.5 percent, to $33.98 a barrel, the lowest settlement since Dec. 19. It was the fifth consecutive daily decline.

“So far oil is up and the number one cause for this is the huge swing in the Dow Jones in the last hour, being down 200 points to almost break even,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle.

Still, crude prices are down 14 percent this week, the biggest weekly slump since the week of Dec. 19. Oil is down 23 percent this year and 63 percent from a year ago.

Treasury Secretary Timothy Geithner intends to make the Obama administration’s plan public in coming days, possibly within a week, said the person, who declined to be identified before the announcement.

Supply Glut

Crude oil prices have fallen on concern that inventories will extend increases as demand drops. Supplies have gained in 18 of the past 20 weeks, leaving stockpiles at the highest since July 2007, the Energy Department said.

World oil consumption will drop 1.7 percent to 84.3 million barrels a day this year, consultant Wood Mackenzie said in a report yesterday. The Energy Department and International Energy Agency cut their demand forecasts earlier this week.

“Oil consumption has weakened fairly dramatically and in certain parts of the U.S. we have very high inventories,” said Commonwealth Bank’s Moore. “We’re going to have to work through those first but with consumption as weak as it’s been, that’s going to take some time.”

The discount of the March West Texas Intermediate contract, the grade that’s traded in New York, to London’s Brent future for the same month widened to a record $10.67 a barrel yesterday after supplies at Cushing, Oklahoma, rose.

Brent Rises

Brent increased after Royal Dutch Shell Plc said it may miss deliveries of oil from Nigeria because of security concerns. Brent for March settlement climbed 37 cents, or 0.8 percent, to $44.65 a barrel on London’s ICE Futures Europe exchange. March futures expired yesterday. The more-active April contract gained 71 cents, or 1.6 percent, to close at $46.03 a barrel.

Supplies at Cushing, where WTI is stored, climbed 1.7 percent to 34.9 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location.

“WTI’s relative positions to other global grades and other months has been very distorted,” said Moore. “This is ample evidence of the large inventories at Cushing.”

Prices for delivery in future months are higher than for earlier ones, a situation known as contango, allowing buyers to profit from hoarding oil. The price of oil for delivery in April is $8.19 a barrel higher than for March. December futures are up $19.89 from the front month.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.