Oil Rises From a Two-Week Low as China’s Manufacturing Expands

By Yee Kai Pin and Gavin Evans

Nov. 2 (Bloomberg) -- Crude oil rose from a two-week low as traders bought back contracts on bets of a recovery in fuel demand after manufacturing in China, the world’s second-biggest oil user, expanded at the fastest pace in 18 months.

Oil had earlier fallen below $77 a barrel as Asian stocks slumped, reflecting concern over the outlook for growth. Manufacturing in China, Asia’s fastest-growing economy, expanded in October, according to a purchasing managers’ index released by HSBC Holdings Plc today and also a government-backed PMI released yesterday.

“There’s a lot of speculative activity that’s pricing in a recovery,” Mark Pervan, a senior commodity strategist at ANZ Banking Group Ltd. in Melbourne, said in a Bloomberg Television interview. “The market could go lower but we shouldn’t get too carried away with what’s happening in the short term. There are a lot of people looking to buy on the dips.”

Crude oil for December delivery rose as much as 68 cents, or 0.9 percent, to $77.68 a barrel in electronic trading on the New York Mercantile Exchange. It was at $77.17 a barrel at 4:05 p.m. Singapore time.

Futures lost 4.4 percent last week, the first pullback in a month, after U.S. crude oil and gasoline stockpiles rose, equities declined and the dollar’s rebound reduced the investment appeal of commodities. Prices were down 3.6 percent Oct. 30 after a report showed U.S. consumer spending in September fell for the first time in five months.

“If equities sell off further, that will see a further advance in the dollar which might call into question bullish positions in commodities,” said Toby Hassall, research analyst with CWA Global Markets Pty in Sydney. “Medium-term, that recovery story, you’d have to say, remains in place.”

‘Tough’ Economy

The U.S. economy is still “tough” for huge numbers of American businesses and the recovery will take time, Treasury Secretary Timothy Geithner said in an interview yesterday on NBC’s “Meet the Press” program.

“It could be a little choppy. It could be uneven. And it’s going to take a while,” he said.

The world risks a second slump if countries withdrew government stimulus programs too soon, Chinese Commerce Minister Chen Deming told an economics conference in Shanghai Oct. 31.

“There are still many uncertainties,” he said.

Chinese manufacturing data for October showed the nation’s recovery strengthening and export orders climbing, giving policy makers more room to pare stimulus measures in coming months.

Oil reached a one-year high of $82 a barrel Oct. 21 as the dollar slid to a 14-month low against a basket of major currencies. Prices have gained 74 percent this year as rising share markets emboldened investors and the weaker dollar steered funds into commodities.

Price Bets

Hedge-fund managers and other large speculators increased their bets on rising oil prices to a 19-month high last week, according to U.S. Commodity Futures Trading Commission data.

Speculative net-long positions, the difference between orders to buy and sell the commodity, climbed 47 percent to 109,619 contracts in the week ended Oct. 27, the commission said Oct. 30. That’s the highest since March 14, 2008.

Brent crude for December settlement climbed as much as 78 cents, or 1 percent, to $75.98 a barrel on the London-based ICE Futures Europe exchange. The contract was at $75.42 at 4:06 p.m. in Singapore.

To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net; Gavin Evans in Wellington at gavinevans@bloomberg.net