Oil Rises Above $40 Before Supply Data, Supported by Equities

By Grant Smith

Feb. 25 (Bloomberg) -- Crude oil rose for a second day, supported by gains in equity markets before a report on U.S. inventories.

Oil climbed 4 percent yesterday as U.S. stocks advanced the most in a month on speculation the government may not have to nationalize banks. U.S. crude inventories probably increased by 1.25 million barrels last week, according to a Bloomberg survey of 14 analysts before today’s Energy Department report.

“A lot depends on the inventory data,” said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich AG in Vienna. “Yesterday’s strength in oil was fostered by equity markets, but what really hinders crude for now is bad demand data.”

Crude oil for April delivery gained as much as 90 cents, or 2.3 percent, to $40.86 a barrel, on the New York Mercantile Exchange. The contract traded at $40.58 at 1:08 p.m. London time. Prices have fallen 59 percent in the past year.

U.S. inventories fell 138,000 barrels in the week ended Feb. 13, the first decline so far this year. The Energy Department will release its report at 10:30 a.m. in Washington.

Supplies rose by 341,000 barrels to 346.2 million barrels a day last week, the industry-funded American Petroleum Institute said in a report released after the markets closed yesterday in Washington.

Japanese Imports

Crude imports in Japan dropped 8 percent in January from a year earlier, the finance ministry said today. Nippon Oil Corp., the country’s largest oil refiner, will slash crude oil processing by 22 percent in March from a year earlier as a milder-than-average winter reduces heating-oil demand, a company spokesman said by telephone.

Brent crude oil for April settlement gained as much as 62 cents, or 1.5 percent, to $43.12 a barrel on London’s ICE Futures Europe exchange. It was at $42.75 a barrel at 1:09 p.m. London time.

The MSCI World Index rose for a second day, increasing 0.6 percent to 772.11 at 12:27 p.m. in London.

Oil prices will probably start rising in the second half of the year as a drop in demand starts leveling off and OPEC cuts supply, according to a Barclays Capital report yesterday.

The oil market’s “current phase will determine whether OPEC has merely succeeded in staunching the fall or whether prices will start to trend upwards, particularly in the second half of the year,” Barclays analysts including London-based Paul Horsnell said in a report.

OPEC Quotas

The 11 OPEC members with quotas, all except Iraq, reduced output by 3.8 percent to 25.3 million barrels a day in February, according to consultant PetroLogistics Ltd. of Geneva. That’s down from 26.3 million barrels in January, according to Conrad Gerber, founder of PetroLogistics. Members have a quota of 24.845 million barrels a day.

“The abatement of the bearish trend that dominated the last half of last year coincides absolutely with OPEC cuts,” said Julian Keites, a broker at Newedge Group in London. “There’s demand out there, the contango is tightening up, and that’s why we’re seeing a substantial floor around $39 to $40.”

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net