Oil Rises More Than $2 as Equity Gains Signal Demand May Climb

By Mark Shenk

April 9 (Bloomberg) -- Crude oil rose more than $2 a barrel as equities gained, signaling that some investors expect economies to stabilize, bolstering energy demand.

Oil rose as much as 6 percent after stocks increased on better-than-estimated earnings at Wells Fargo & Co. and speculation banks will pass government stress tests. Prices were also higher because a government report showed a smaller gain in U.S. supplies than the industry indicated a day earlier.

“When equities bounce, you see oil, industrial metals and grains lift as well,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “The commodity markets are awaiting the return of global growth, and the stock market is an early signal that the economy is recovering.”

Crude oil for May delivery rose $2.19, or 4.4 percent, to $51.57 a barrel at 10:36 a.m. on the New York Mercantile Exchange. Prices are up 16 percent this year.

The Standard & Poor’s 500 Index added 3 percent to 849.45. The Dow Jones Industrial Average rose 2.6 percent to 8,044.16.

“Oil prices are likely to hover around $50 a barrel for now,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. “The proximity of this psychologically important level, rising equity markets and a smaller-than-feared increase in U.S. oil inventories have given the price a boost.”

Two Reports

U.S. crude oil supplies increased 1.65 million barrels to 361.1 million last week, the highest since July 1993, the report yesterday from the U.S. Energy Department showed. The industry- funded American Petroleum Institute said April 7 that stockpiles jumped by 6.94 million barrels to the highest since 1990.

“People were a little bit shocked yesterday that the crude number was so different than the API number,” said Ray Carbone, president of Paramount Options Inc. in New York and a trader at the New York Mercantile Exchange. “We’re just in a range between $47.25 and $53 and nothing has broken us out of that range.”

Global oil demand falls to an annual low during the second quarter as refineries close to perform maintenance after winter in the Northern Hemisphere.

“If prices stay where they are, at about $50, or even drop a little, it will be a good thing because we should not forget that the global economy is shrinking,” Algerian Oil Minister Chakib Khelil told the state-run Algerie Presse Service yesterday.

The market continues to be oversupplied, and the Organization of Petroleum Exporting Countries will decide at its May 28 meeting whether to cut production, depending on the state of the global economy, he said.

“OPEC is generally OK with oil at this level,” O’Grady said. “It’s too low to spur a lot of exploration but high enough for most members to meet their budgets.”

Fuel Supplies

Gasoline stockpiles rose 656,000 barrels to 217.4 million in the week ended April 3. Total daily fuel demand averaged over the past four weeks was 18.9 million barrels, down 4.4 percent from a year earlier, the Energy Department said. It was the lowest consumption for a four-week period since October.

Stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude oil is delivered, fell 878,000 barrels to 29.98 million last week, the lowest since the week ended Dec. 26. Supplies in the week ended Feb. 6 were the highest since at least April 2004, when the Energy Department began keeping records for the location.

Cushing supplies are still above their average of 20.5 million barrels over the past five years. The excess in inventories has weighed on the May Nymex oil contract, which trades at a discount to June futures, a situation known as contango. The difference between the two is now at $2.34 a barrel, up from 69 cents a barrel a month ago.

Texas Discount

Brent crude oil for May settlement rose $1.74, or 3.4 percent, to $53.33 a barrel on London’s ICE Futures Europe exchange.

Brent is trading at a premium of $1.76 a barrel to the West Texas Intermediate contract in New York, swinging from a discount of 43 cents on March 31.

“The WTI-Brent differential does appear to us to be justified by the extreme imbalance” in inventories, Paul Horsnell, head of commodities research at Barclays Capital in London, said in a report today.

Still, Barclays is “not overly concerned about the absolute size of the crude inventory overhang,” saying cuts by the Organization of Petroleum Exporting Countries will siphon off the excess.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net