Crude Heads for Fourth Weekly Gain on Europe Plan Amid Shrinking Supplies

By Ben Sharples and Yee Kai Pin - Sep 16, 2011 10:17 AM GMT+0700

Oil headed for a fourth weekly gain in New York, the longest winning streak since July, as investors speculated that a plan to contain Europe’s debt crisis will boost fuel demand amid falling supplies.

Futures were little changed as the European Central Bank said it worked with the U.S., U.K., Japan and Switzerland to extend three-month loans to euro-area banks. The 17 euro nations accounted for about 12 percent of global oil demand in 2010, according to Bloomberg calculations based on BP Plc’s Statistical Review of World Energy. U.S. crude stockpiles dropped last week, an Energy Department report showed Sept. 14.

“Crude inventories in the U.S. have been declining and output from the North Sea is still not normal, so that’s going to be a support factor,” said Ken Hasegawa, a commodity- derivatives sales manager at broker Newedge Group in Tokyo, who expects oil to trade around $85 to $90.50 a barrel in coming days. “It’s possible for prices to go down again but West Texas Intermediate will be very steady.”

Crude for October delivery was at $89.64 a barrel, up 24 cents, in electronic trading on the New York Mercantile Exchange at 1:11 p.m. Sydney time. The contract yesterday rose 49 cents to $89.40. Prices are up 2.8 percent this week and 20 percent higher the past year.

Stockpiles Drop

Brent oil for November settlement gained 43 cents, or 0.4 percent, to $112.73 on the London-based ICE Futures Europe Exchange. The October contract, which expired, gained $2.94, or 2.6 percent, to $115.34 yesterday. Prices are up 44 percent the past year. The European benchmark contract was at a premium of $22.95 to West Texas Intermediate November futures, compared with a record $26.87 on Sept. 6 based on front-month settlement prices.

Oil stockpiles in developed nations fell to less than their five-year average in July, the first time since the 2008 recession, and were expected to have fallen further in August, the International Energy Agency said on Sept. 13.

The lack of supply from Libya and production outages in areas such as the North Sea caused inventories to fall in Europe and North America, while Asian companies held less crude than normal, the IEA said in its monthly report.

Libya will resume partial crude exports within three or four days, an official from the nation said in Doha yesterday. The country, holder of Africa’s largest oil reserves, will produce about 700,000 barrels a day by the end of this year and an estimated 1.6 million barrels a day by the end of 2012, Abdulla Saudi told reporters yesterday in the Qatari capital.

“Supply Premium”

“Reports of Libya resuming partial crude exports next week could weigh on Brent, with some of the tight supply premium removed from prices,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today.

Fighting in the African nation since February has reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day last month, according to Bloomberg estimates, compared with the 1.6 million barrels a day the nation pumped in January.

U.S. crude inventories slid 6.7 million barrels to 346.4 million last week as Tropical Storm Lee closed platforms in the Gulf of Mexico, which accounts for 27 percent of U.S. supply, according to the Energy Department report. As much as 61 percent of production was shut, the Bureau of Ocean Energy Management, Regulation and Enforcement said on its website.

To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Yee Kai Pin in Singapore at kyee13@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net