Oil Rises as Asian Stock Gains Increase Fuel-Demand Optimism

By Christian Schmollinger

July 31 (Bloomberg) -- Crude oil rose for a second day in New York as gains in Asian stock markets increased optimism the global economy will rebound, spurring demand for fuels.

Oil reversed earlier losses after the MSCI Asia-Pacific Index climbed 1.3 percent to the highest since April 29. The Standard & Poor’s 500 Index approached a nine-month high on better-than-expected earnings. Oil futures and the S&P 500 have a correlation of 0.6 in the past two months, according to data compiled by Bloomberg.

“The equity markets and the crude markets are both speculating on the economy recovering,” said Daniel Liu, an energy strategist at MF Global in Singapore. “The expectations have driven the two markets together.”

Crude oil for September delivery climbed as much as 72 cents, or 1.1 percent, to $67.66 a barrel in electronic trading on the New York Mercantile Exchange and traded at $67.52 at 12:35 p.m. Singapore time. The contract earlier fell 0.7 percent to $66.49 a barrel.

Yesterday, oil rose $3.59, or 5.7 percent, to settle at $66.94, the biggest gain since April 9.

“The market is very resilient and that there are more bulls than bears,” said MF Global’s Liu.

The MSCI Asia-Pacific Index has risen 3.1 percent this week and 7.9 percent for the month. It has posted gains in every month since March, the longest winning streak since July 2007. The S&P 500 yesterday added 1.2 percent and the Dow Jones Industrial Average climbed 0.9 percent.

“Last night’s movements in oil prices was mainly macro-economic factors more than oil market fundamentals, ” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney.

U.S. Inventories

Prices are down 2.2 percent this week, heading for the first weekly decline since July 10.

U.S. oil inventories gained 5.15 million barrels to 347.8 million in the week ended July 24, the Energy Department said in its weekly report. Stockpiles of distillate fuel, a category that includes diesel and heating oil, rose 2.1 million barrels to 162.6 million, the highest since January 1985.

U.S. refinery use last week fell 1.3 percentage points to 84.6 percent, its second consecutive drop and 2.6 points below the same year-ago period, the Energy Department said July 29.

Refinery Use

The drop in refinery runs pushed the so-called crack spread, the price difference between gasoline and crude oil, to $15.02 a barrel today from $9.17 a barrel on July 14. This is improving processing margins.

“The middle distillate storage is too big so it’s requiring refiners to cut runs,” said MF Global’s Liu. “The unintentional casualty is gasoline production. The reduction has done something to save the middle distillate crack but in another way it can also push the gasoline crack higher.”

The price difference between middle distillate heating oil and crude oil has climbed to $8.04 a barrel today from $3.46 a barrel on July 13.

Crude oil may decline next week on speculation that U.S. inventories will extend gains as demand lags behind because of the recession, a survey of analysts showed.

Twenty-four of 35 analysts surveyed by Bloomberg News, or 69 percent, said futures will fall through Aug. 7. It’s the most bearish response since March 2008. Six respondents, or 17 percent, forecast that prices will be little changed and five expected an increase. Last week, 46 percent of analysts said oil would drop.

Brent crude oil for September settlement rose as much as 55 cents, or 0.8 percent, to $70.66 a barrel on London’s ICE Futures Europe exchange. It was at $70.58 a barrel at 12:43 p.m. Singapore time. It earlier fell as much as 44 cents, or 0.6 percent, to $69.67 a barrel.

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