Oil Rises Above $50 on Signs Economic Slump May Be Stabilizing

By Grant Smith

April 2 (Bloomberg) -- Crude oil rose the most in two weeks, climbing above $50 a barrel on signs the world economy is stabilizing as leaders of Group of 20 nations meet in London to address the financial crisis.

OPEC Secretary-General Abdalla El-Badri said at a conference in Paris oil prices are “bottoming out,” while Goldman Sachs Group Inc. raised its 2009 Brent forecast on evidence that demand destruction has peaked. U.S. Treasury Secretary Timothy Geithner yesterday noted “encouraging signs” of a recovery in financial markets.

“Demand is not going to fall as much as some of the doom- sayers have been saying,” said Gareth Lewis-Davies, an analyst at Dresdner Kleinwort Group Ltd. in London. “What we’re seeing now is the rate of decline in demand in developed economies decelerating, which of course has to happen before a recovery.”

Crude oil for May delivery advanced as much as $3.14, or 6.5 percent, to $51.53 a barrel in electronic trading on the New York Mercantile Exchange. It was at $50.95 a barrel at 12:32 p.m. in London. Oil is up 14 percent this year.

Stocks in Europe and Asia rallied, driving the MSCI World Index higher for a third day, while the Group of 20 summit convenes today in London. U.S. durable-goods orders and home sales rose in February, Chinese urban investment surged 26.5 percent in the first two months of the year, and German investor confidence in March reached its highest level since July 2007.

Inventories Rise

“You’re seeing encouraging signs of improvement in our markets,” Geithner said yesterday in a Bloomberg Television interview in London, where he is attending the meeting with President Barack Obama.

Still, other data is showing that global oil inventories are rising as fuel demand falters because of the recession.

U.S. crude inventories climbed 2.84 million barrels in the week ended March 27 to the highest since July 1993, the Energy Department said. Gasoline supplies unexpectedly rose by 2.23 million barrels to 216.8 million barrels.

Total daily fuel demand averaged over the past four weeks was 18.9 million barrels, down 4.4 percent from a year earlier, the report showed. It was the lowest consumption for a four-week period since October.

Goldman Sachs said Brent crude oil prices may reach $50 a barrel this year, up from an earlier estimate of $45, because of OPEC’s production cuts.

The Organization of Petroleum Exporting Countries cut oil output by 1.2 percent to an average 27.395 million barrels a day last month, according to a Bloomberg News survey of oil companies, producers and analysts. The 11 OPEC members with quotas, all except Iraq, pumped 25.06 million barrels a day, 215,000 more than their target of 24.845 million.

Ailing Economy

OPEC, in a meeting March 15 in Vienna, decided against cutting production targets further because of concern higher prices might harm an ailing global economy. Ministers pledged to tighten compliance with their quotas after crude oil fell more than $100 a barrel from the July record.

Brent crude for May settlement rose as much as $3.20, or 6.6 percent, to $51.64 a barrel on London’s ICE Futures Europe exchange. It was at $51.36 a barrel at 12:23 p.m. London time.

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