Oil Rises as Stimulus Plan Passage May Lead to Fuel Demand Gain

By Christian Schmollinger

Feb. 11 (Bloomberg) -- Crude oil rose in New York, partly retracing yesterday’s 5.1 percent loss, as the U.S. Senate passed an economic stimulus plan, raising expectations for increases in fuel demand.

The Senate plan provides more than $500 billion in new spending that supporters call critical to preventing the world’s largest oil user from sinking deeper into a recession. Saudi Arabia, the biggest global producer, will more than double its spare capacity by mid-year, Oil Minister Ali al-Naimi said at a conference in Houston.

“There’s a lot of wishful thinking that this stimulus package is going to come to the rescue and that’s driven prices higher,” said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “We’ve been seeing some big numbers in the past weeks on the inventories, around 6 or 7 million barrels, and I wouldn’t be surprised if we see something similar.”

Crude oil for March delivery rose as much as 67 cents, or 1.8 percent, to $38.22 a barrel on the New York Mercantile Exchange. It was at $37.89 a barrel at 11:10 a.m. Singapore time.

Yesterday, crude oil for March delivery fell $2.01 to $37.55 a barrel in New York, the lowest settlement since Jan. 16. It was the biggest drop since Jan. 27. Oil is down 15 percent this year and has declined 60 percent from a year ago.

Oil dropped yesterday on skepticism over the government’s plan to bailout banks and on expectations a report today will show inventories climbed.

The Senate approval clears the way for negotiations with the House over a compromise plan that President Barack Obama wants lawmakers to send to him within days. Only three Republicans voted for the plan and divisions remain on the package’s size.

Saudi Capacity

The new capacity will come from the kingdom’s Khurais project, which will bring on stream 1.2 million barrels a day of oil, more than the production of OPEC nations Qatar or Ecuador, al-Naimi told the Cambridge Energy Research Associates conference in Houston late yesterday.

“The most powerful tool we have for achieving a balanced market is our maintenance of spare production capacity,” he said. “Such capacity has helped to counter market volatility.”

Khurais, with a reserve of 27 billion barrels, began producing in the 1960s and was mothballed by Saudi Aramco in the early 1990s, Amin al-Nasser, senior vice president of exploration and production at Saudi Aramco, said last year. It is a satellite of the Ghawar field, the world’s biggest.

Oil prices, which soared as high as $147.27 a barrel on the New York Mercantile Exchange in July, were “unsustainable,” al- Naimi said. He blamed the rally in part on market speculators. From a fundamental standpoint, prices will be “just as unsustainable” at current low levels as they were at the “stratospherically high levels experienced last year,” he said.

API Supplies

The industry-funded American Petroleum Institute reported that U.S. supplies declined 2 million barrels to 344.3 million last week. The API published its weekly report on oil inventories at 4:30 p.m. in Washington yesterday.

Energy Department figures, to be released at 10:30 a.m. in Washington today, may show that crude-oil stockpiles increased 2.75 million barrels in the week ended Feb. 6 from 346.1 million the week before, according to the median of 14 analyst estimates. It would be the 18th gain in 20 weeks. All of the analysts said supplies rose.

Gasoline stockpiles gained 500,000 barrels from 220.2 million, according to the survey. Supplies of distillate fuel, a category that includes heating oil and diesel, probably fell 1.5 million barrels from 142.6 million.

Brent crude oil for March settlement climbed as much as 50 cents, or 1.1 percent, to $45.11 a barrel on London’s ICE Futures Europe exchange. It was at $44.73 at 11:08 a.m. Singapore time.

The contract yesterday fell $1.41, or 3.1 percent, to end the session at $44.61 a barrel. Brent futures closed at a $7.06 premium to West Texas Intermediate, the grade that’s traded in New York.

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