Oil Rises as U.S. Economic Stimulus Package Passes Key Hurdle

By Christian Schmollinger and Samantha Zee

Feb. 10 (Bloomberg) -- Crude oil rose on speculation demand may climb as an economic stimulus package sought by President Barack Obama cleared a procedural hurdle in the U.S. Senate.

Congress is seeking to complete work on the $827 billion package so that it can be sent to the president by the end of the week. The Senate plan would funnel about $655 billion into the U.S. economy, the Congressional Budget Office said yesterday. The country is the world’s largest oil consumer.

“The focus is on the immediate real economic effects on this stimulus package,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “That’s going to be the dominating factor in terms of how it’s received by the market.”

Crude oil for March delivery gained as much as 67 cents, or 1.7 percent, to $40.23 a barrel in electronic trading on the New York Mercantile Exchange. It was at $39.84 a barrel at 3:56 p.m. Singapore time.

Yesterday, futures fell 61 cents, or 1.5 percent, to settle at $39.56 a barrel in New York. Oil is down 11 percent this year and 57 percent from a year ago.

There is concern that the borrowing needed to pay for the stimulus plan will weigh on the U.S. currency. Dollar-priced commodities are more attractive to investors when the currency weakens.

“With a huge stimulus plan in the works I would not be surprised if the dollar takes a large fall initially due to extreme deficit spending and higher inflationary fears,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “This would in turn put pressure on oil to go up in price.”

Stockpiles Gain

Weighing on prices is speculation U.S. oil stockpiles increased for the 18th time in 20 weeks as the global recession curbed demand.

Oil supplies probably climbed 2.5 million barrels last week, according to the median of seven analyst estimates in a Bloomberg News survey. Gasoline supplies probably rose 625,000 barrels. U.S. fuel use has declined in the past year as the economy contracted.

Supplies at Cushing, Oklahoma, where oil traded on Nymex is stored, climbed 2.5 percent to 34.3 million barrels in the week ended Jan. 30, the highest since at least April 2004, when the department began keeping records for the location.

The Energy Department is scheduled to release its weekly inventory report tomorrow at 10:30 a.m. in Washington.

Oversupply Signs

The price of oil for delivery in April is more than $6 a barrel higher than for March. December futures are up more than $15 from the front month. This structure, in which the future month’s price is higher than the one before it, is known as contango, and is often an indicator of oversupply.

“You’ve still got this distortion at the front of the Nymex curve related to the level of inventories at Cushing,” said Commonwealth Bank’s Moore. “The sub-$40 price is maybe not the most accurate reflection of the market.”

Brent crude oil for March settlement rose as much as 56 cents, or 1.2 percent, to $46.58 a barrel on London’s ICE Futures Europe exchange. It was at $46.30 a barrel at 3:59 p.m. Singapore time.

The Organization of Petroleum Exporting Countries has complied with about 80 percent of the 4.2 million barrels a day of production cuts it announced and has 900,000 barrels left to go, Secretary-General Abdalla el-Badri told reporters in London yesterday. That’s left the group with about 8 million barrels of shut-in capacity.

Cutting Forecasts

“The OPEC production cuts are helping to hold a floor for prices,” Moore said. “Overall current indications are that compliance is solid.”

The International Energy Agency, the Organization of Petroleum Exporting Countries and the U.S. Energy Department revised their global demand forecasts lower last month and said global consumption will drop this year.

The IEA will cut its outlook this month because of slowing economic growth, Nobu Tanaka, the agency’s executive director, said on Feb. 2. The Paris-based agency, which advises 28 developed nations on energy policy, is scheduled to publish its monthly report on Feb. 11.

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.